UPDATE 2-Toshiba, China to co-develop nuclear reactor -Nikkei

* Toshiba unit, China to develop 1.4 mln-kw reactor -Nikkei

* Toshiba shares gain 2.2 percent in Tokyo trading (Adds company comment, share price)

TOKYO, Jan 5 (Reuters) - Toshiba Corp 6502.T unit Westinghouse Electric Co will work with China's State Nuclear Power Technology Corp to develop a large nuclear reactor, the Nikkei business daily said.

Westinghouse will join an SNPTC-led project to develop the CAP1400, a 1.4 million-kilowatt class pressurised-water reactor (PWR) able to generate enough electricity to power about 500,000 typical Japanese households, the Nikkei reported, without saying where it obtained the information.

Toshiba spokesman Hiroki Yamazaki played down the report. “At this time there is no truth (to the report),” he said.

Westinghouse has already provided the Chinese state company with the specifications for its midsize 1 million-kilowatt PWR, the AP1000.

Through broader cooperation with SNPTC, the Toshiba group aims to add large PWRs to its product lineup and accumulate knowhow to develop large high-performance reactors while holding down development costs, estimated at a minimum 50 billion yen ($610 million), the Nikkei said.

SNPTC, which has already started designing the CAP1400 and aims to have the reactor up and running by around 2017, hopes an alliance with Toshiba’s nuclear unit will shorten development time, the Nikkei said.

When completed, Westinghouse may sell the CAP1400 to other countries to compete with rivals Mitsubishi Heavy Industries Ltd 7011.T and France's Areva CEPFi.PA in large PWRs.

Toshiba shares gained 2.2 percent in Tokyo trading to 459 yen, compared with a 0.2 percent dip in the benchmark Nikkei 225 average .N225. ($1=81.86 Yen) (Reporting by Shravya Jain in Bangalore and Tim Kelly in Tokyo; Editing by Jarshad Kakkrakandy and Edmund Klamann)