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* Itochu could pay around $1.7 billion for assets-source
* Dole still in talks with others for sale of some assets
* Strong yen, flush cash reserves spurring Japanese traders
By Soyoung Kim
NEW YORK Sept 13 (Reuters) - Dole Food Company Inc said it is in advanced talks with Itochu Corp to sell its packaged foods and Asian fresh fruit and vegetable businesses to the Japanese trading house, causing shares of world's largest fruit and vegetable company to jump almost 10 percent.
Dole, founded in 1851, has struggled with volatile demand and low prices for bananas, its biggest-selling product. In contrast, thanks to a strong yen and flush reserves of cash, Japanese trading houses have been active in overseas acquisitions, particularly non-resources firms, as they look to diversify their profit streams.
In May, Marubeni Corp announced a multi-billion dollar deal to buy U.S. grain merchant Gavilon and last year Mitsui & Co spent a little more than $1 billion for a stake in Asia's largest hospital operator IHH Healthcare Bhd .
No definitive terms have been signed with Itochu and Dole remains in discussions with other parties about selling these and other assets, Dole said in a statement.
Itochu could pay around $1.7 billion for the Dole businesses, a person familiar with the matter said, asking not to be named because details of the negotiations are not public.
Itochu will set up a new company to acquire the two Dole business segments, Itochu said in a statement on Thursday. The new company is slated to be established in November with capital investment to be determined.
Of Itochu's 280 billion yen ($3.60 billion) net profit projected in the year to March 2013, the trading house estimates about 15 percent will come from its food business, compared to the almost 40 percent expected from its metals division.
Dole, which distributes produce and fresh fruit worldwide, began exploring strategic options in May and said in July it was in talks to sell or spin off its packaged foods business and was considering a deal in Asia.
Dole Food's packaged foods business includes canned pineapple, canned pineapple juice, fruit juice concentrate, fruit in plastic cups and other packages and frozen fruit.
Its other businesses sell fresh bananas, pineapples and berries, and more than 20 different types of fresh vegetables as well as bagged salads.
Shares of Dole, which went public in October 2009, rose almost 10 percent to $14.07 on the New York Stock Exchange on Wednesday. Itochu shares ticked up 0.5 percent to 804 yen in early Tokyo trade on Thursday.
$1 = 77.8700 Japanese yen Additional reporting by James Topham and Yuko Inoue in Tokyo; Ranjita Ganesan in Bangalore; Editing by Matt Driskill