* Extension comes as A123 faces financial setbacks
* Co. has until Dec. 2014 to fully use $249 mln US grant
* A123 spokesman says extension is "very positive"
DETROIT, April 11 (Reuters) - A123 Systems Inc has been given two more years to fully tap a $249 million grant from the Obama administration to encourage advanced battery development and create jobs in the United States.
The lithium-ion battery maker now has until December 2014 to use the U.S. Department of Energy grant earmarked to build an A123 battery factory in Michigan.
The DOE and A123 agreed to extend the contract last week, A123 said in a U.S. Securities and Exchange Commission filing on Wednesday. A123 won the grant in 2009 and had until the end of this year to tap the grant in full.
"We see this as very positive because it allows us to continue on our growth path in Michigan," A123 spokesman Dan Borgasano said.
At the end of 2011, A123 had received $127 million of the DOE grant, which stipulates that the company must match at least a portion of the money provided by the U.S. government. Typically, recipients of these grants are reimbursed for their expenses on approved projects.
In recent months, a series of setbacks have weakened A123's financial position and sent its stock tumbling more than 40 percent so far this year.
In March, A123 posted its largest ever quarterly loss, hurt by a drop in battery orders from its main customer, Fisker Automotive.
Another blow came when a Fisker Karma plug-in hybrid sports car with an A123 battery failed during a test by Consumer Reports magazine. The cause was a manufacturing defect at an A123 plant. A123 said it would replace the batteries, which would cost the company $55 million.
President Barack Obama's administration has been a strong proponent of electric vehicles and set a goal of getting 1 million battery-powered vehicles on the road by 2015.
Both A123 and Fisker received DOE funding as part of this goal. A123 will make the batteries for General Motors Co's upcoming all-electric Chevrolet Spark.
But Americans' adoption of electric vehicles faces hurdles, including high prices and concerns over battery safety. One person was seriously injured in an explosion at a GM laboratory Wednesday during a test of lithium-ion batteries for electric cars not yet in production.
Still, analysts and executives say there will be challenges in bringing this battery technology to a wide swath of vehicles because it is new and there is a learning curve.
(Reporting By Deepa Seetharaman; Editing by Richard Chang)