UPDATE 1-ABC Learning: still in talks with Morgan Stanley

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SYDNEY, March 25 (Reuters) - Australia's ABC Learning Centres Ltd (ABS.AX: Quote, Profile, Research), whose shares were sold off on concerns about its debt levels, said on Tuesday it was still in talks to sell a 60 percent stake in its U.S. centres to the private equity arm of Morgan Stanley (MS.N: Quote, Profile, Research).

The childcare operator said in a statement that the exclusivity period with Morgan Stanley will end on Tuesday, New York time. Earlier this month, ABC Learning said the deal with Morgan Stanley would raise about A$750 million ($682 million) to repay about half its heavy debt load. The deal was subject to approval from ABC's banks.

At the time, ABC said if the sale did not proceed, it would still be able to meet its financial covenants under its existing banking facilities.

ABC refinanced about A$1.5 billion worth of loans in December, with repayment of the principal now due in 2010.

The group's shares have tumbled 65 percent since it reported disappointing first-half earnings in February and investors became worried about its high debt levels, built up to fund a rapid expansion in the United States last year.

The collapse of its share price triggered margin sales by several directors, including founder Eddy Groves.

Shares in ABC closed on Thursday at A$1.30. ($1=A$1.10) (Reporting by Victoria Thieberger; Editing by James Thornhill)