Bern-based UGG, owned by Germany's industrial holding Koerber AG, makes tools to grind surfaces and small workpieces, and is seen fetching around 600 million euros (531.04 million pounds), the two sources said.

At least four groups made it to the final round of bidding and they include Chinese sovereign wealth fund CIC's arm China Jianyin Investment (JIC), and a joint bid by Chinese machinery maker Sinomach (>> Sinomach General Machinry Sci&Tech CoLtd) and investor Sino-Ceef.

Two others are private equity firm Carlyle (>> The Carlyle Group LP) and an unnamed Western industrial group, the sources said, and final bids must be submitted by the end of this month.

Koerber and the bidders declined to comment or were not immediately available for comment on their interest in UGG.

The Chinese interest is the latest sign of unabated demand for deals seen as strategic for the country, which are exempted from a state clampdown on Chinese foreign investment.

That policy reduced Chinese outbound mergers and acquisitions by a third last year to $140 billion, according to ThomsonReuters data. Mergers and acquisitions experts, however, expect that Chinese guidelines issued in November will help drive a rebound in outbound deals in 2018.

The acquisition of German high-tech robot maker Kuka by China's Midea (>> Midea Group Co Ltd) in 2016 sparked criticism in Germany that key technologies were falling into foreign hands just as China protects its own companies against foreign takeovers, and Germany's takeover code has since been tightened.

While intensified scrutiny, including that of U.S. regulators, has derailed deals such as the sale of German chip maker Aixtron to a Chinese company, deals not touching on security issues are seen as unproblematic, dealmakers have said.

Koerber is separately examining a possible Swiss stock market flotation of UGG, sources told Reuters last month. UGG expects earnings before interest, tax, depreciation and amortisation of around 80 million euros this year and of slightly less than that in 2019, according to people familiar with the matter.

First round bids came in at 7-7.5 times UGG's expected 2018 core earnings, the sources said.

(Additional reporting by Kane Wu; Editing by Susan Fenton)

By Arno Schuetze