MILAN (Reuters) - Technology firm Insigma (>> Insigma Technology Co.,LTD) has teamed up with another Chinese company to try to buy Finmeccanica's (>> Finmeccanica SpA) rail assets, two people familiar with the matter said, a move that could thwart a rival bid from Hitachi (>> Hitachi, Ltd.).

Italy's Finmeccanica is selling its unprofitable train-making unit AnsaldoBreda and its 40 percent stake in Ansaldo STS (>> Ansaldo STS SpA), which makes rail signalling systems, to cut debt and focus on its core aerospace and defence businesses.

The sources told Reuters that Insigma had agreed with Chengdu-based construction equipment maker Xinzhu (>> Chengdu Xinzhu Road&Bridg Mchnry Co Ltd) on a possible bid, asking Finmeccanica for a few more weeks to review AnsaldoBreda's accounts before presenting a proposal.

Mauro Moretti, CEO of state-controlled Finmeccanica, had given potential bidders a Nov. 17 deadline to submit bids but by that date the group had received only one proposal, from Hitachi.

Japanese news agency Nikkei said this month that Hitachi was likely to offer around $1.7 billion for the assets.

The late Chinese move has now presented the CEO with a dilemma: whether to go ahead with Hitachi on an exclusive talks basis or allow another extension of the long-delayed sale. "The ball is in Finmeccanica's court," one source said.

It could also pressure Hitachi to present a binding offer, the sources said.   

In a statement on Thursday, Finmeccanica did not confirm the Chinese interest but said Moretti had updated the board about developments in the sale process, adding he was asked to continue with the talks, without elaborating.

Representatives at United Mechanical and Electrical (>> United Mechanical & Electrical Co Ltd), the Insigma unit involved in the transaction, and Xinzhu could not be reached for comment.

A sale of AnsaldoBreda and listed Ansaldo STS, which has a 1.7 billion-euro market value, would mark a revival of industry deals in Europe after a failed attempt this year to merge Siemens (>> Siemens AG) and Alstom's (>> Alstom) train-making units.

Moretti, who took over the top post at the group this June after running Italy's state railways for six years, confirmed this month plans to decide on the sale by the end of the year.

In mid-October Finmeccanica said it had shortlisted Hitachi and China's CNR Corp (>> China CNR Corp Ltd) in the sales process. But CNR, which had teamed up with Insigma for a bid, later pulled out of the contest to focus on a merger with CSR Corp (>> Csr Corp Ltd), one of the sources said.

(This version corrects eighth paragraph and third bullet point after company issues new statement removing reference to talks time-frame)

(Additional reporting by Antonella Cinelli in Rome and by Shanghai Newsroom; Editing by Keith Weir and Pravin Char)

By Danilo Masoni