(Corrects 11th paragraph to read "...interested in taking a stake" not "..interested in taking an 8 percent stake)
* Sarkozy reiterates France's commitment to nuclear
* E.ON reiterates interested in expanding in France
* Says taking stake in Penly EPR is an "interesting option"
* Enel still interested in Penly EPR
(Recasts with Sarkozy comment, background)
By Nina Sovich
PARIS, Dec 14 (Reuters) - France pledged 1 billion euros ($1.5 billion) to support next generation reactor design and said it would seek foreign capital to back its move to the forefront of nuclear energy expansion.
The investment is part of a 35 billion-euro spending plan French President Nicolas Sarkozy Sarkozy unveiled on Monday aimed at improving France's competitiveness.
The new nuclear projects, dubbed fourth generation reactors, would recycle uranium and plutonium, creating less waste, he told a press conference.
As concerns rise over dwindling oil supplies and the environmental hazards of global warming, nuclear energy, which produces almost no carbon dioxide, has come back into vogue.
The French government, which owns majority stakes in both nuclear reactor maker Areva CEPFi.PA and utility giant EDF (EDF.PA), is trying to position France as the market leader in designing and running these power plants.
"Do we need external partners? Yes, I can say so without taking the risk of predicting a decision. Why? Because it's an industry that is capital intensive," Sarkozy said.
The cost of a European Pressurized Reactor -- the type of nuclear plant France's reactor maker Areva CEPFi.PA is constructing in France, Finland and China -- is between 5 and 6 billion euros, industry experts say.
To fund these costs, the French government recently asked Areva to sell its electricity business for some 4 billion euros. It has also invited foreign utilities to take stakes in new plants being built in France.
German utility E.ON (EONGn.DE) reiterated on Monday that it is in talks with EDF about expanding in France and said that taking a stake in the new nuclear plant planned for Penly would be "an interesting option," with 8 percent being a realistic size for a potential stake.
At the moment, EDF owns the majority stake in Penly, in northwestern France, while GDF Suez GSZ.PA owns 33 percent and Total (TOTF.PA) 8 percent.
Italy's Enel (ENEI.MI) is also interested in taking a stake, a spokeswoman said on Monday. The Italian utility currently has a 12.5 percent stake in the EPR being built in Flamanville.
During the press conference, Sarkozy also hinted that the nuclear industry, which has already been shaken by the entrance of EDF's new chief executive, Henri Proglio, could be further reorganized.
"In the coming weeks, we could be brought to making choices that give the best chances to the French nuclear industry," Sarkozy said.
Last month Proglio blasted French energy companies bidding on a contract to build nuclear power plants in Abu Dhabi for its lack of coherence.
He said EDF would take over the French consortium, made up of Total, GDF Suez, Areva and EDF, and spearhead the effort to land the 40 billion euro deal.
France was once seen as a shoe-in to win the bid but a less expensive offer from a South Korean consortium led by Korea Electric Power Co. and Toshiba (6502.T) has been well received in Abu Dhabi, analysts said.
($1=.6818 Euro) (Additional reporting by Dominique Vidalon in Paris and Peter Dinkloh in Frankfurt; Editing by David Cowell)