UPDATE 1-JPMorgan to sell physical commodities business to Mercuria

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By Dmitry Zhdannikov and Chris Peters

NEW YORK, March 19 (Reuters) - U.S. investment bank JPMorgan

JPM.N has agreed to sell its physical commodities business to Mercuria, sources close to the deal said on Wednesday, catapulting the Swiss trade house into the top tier of commodities traders.

The terms of the deal are not yet clear, but when the bank first opened its books to potential buyers in October it valued the assets at $3.3 billion, the Wall Street Journal reported.

Sources familiar with the matter have told Reuters the price tag is $2.5 billion.

JPMorgan in London declined to comment on the matter, while Mercuria could not be reached immediately for comment.

In February, Reuters reported that Mercuria, led by two former Goldman Sachs GS.N executives, became the front-runner to buy the physical commodities unit, one of the most powerful oil and metals desks on Wall Street. News Search ID:nL5N0LA4IS

JPMorgan decided to sell its multi-billion dollar physical commodities division last year due to rising regulatory and political pressure and so it could concentrate on the bank's core business of lending.

The bank went into exclusive talks with Mercuria in February. In the final weeks, the trade house had been competing with Australian bank Macquarie Group MQG.AX and private equity manager Blackstone Group LP to buy JPMorgan's unit, sources had said.

Private and lightly regulated trading houses have benefited most from a major retreat by banks from commodities trading over the past two years.

Companies such as Glencore and Russian oil major Rosneft hired whole teams of traders from banks such as Morgan Stanley but Mercuria will become the first trading house to absorb an entire physical division from a bank.

(Reporting By Chris Peters, Dmitry Zhdannikov and Ron Bousso, writing by Susan Thomas, editing by Anna Willard)

((dmitry.zhdannikov@thomsonreuters.com))

Keywords: JPMORGAN/MERCURIA