MILAN/LONDON (Reuters) - General Electric is set to clinch a deal to buy Italian aerospace supplier Avio whose parent company, Cinven, has ended talks with rival French suitor Safran , sources involved in the deal told Reuters.

"The deal is quite close. It looks like Safran is out," one source said on Tuesday.

U.S. conglomerate GE, which is offering around 3 billion euros ($3.9 billion) for Avio, is not interested in its space division, two sources with knowledge of the deal talks said.

Avio had 2011 revenue of more than 2 billion euros and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 384 million.

If a deal goes ahead, GE would likely seek a buyer - possibly state-backed Italian Strategic Fund (FSI) - for Avio's space assets, worth an estimated 200-300 million euros, sources said.

While Safran would also be an obvious buyer for the space unit, such a move would face political opposition, according to Italian bankers involved.

The government regards Avio, which supplies engine parts for Eurofighter Typhoons and also to engine makers GE and Rolls-Royce , as a strategic asset and is thought to be reluctant to let it fall into foreign hands.

In the summer, the government passed legislation giving it special powers in certain sensitive sectors such as defense.

One Italian investment banker not directly involved in the deal noted any transaction required a nod from the government, which may take time in view of Mario Monti's decision to step down early as prime minister.

"There is a 'golden share' hanging over the company. With the government about to stand down, there is a certain vacuum."

Avio, based in Turin, northern Italy, is owned by BCV Investments, in which Cinven private equity has a majority. Cinven bought Avio in 2006 in a deal that valued it at about 2.6 billion euros.

Italian defense group Finmeccanica , which owns around 14 percent of Avio, reached an agreement in May to sell its stake to Italian fund FSI. That deal was subject to Avio being listed. Sources have said since that plans to go public had been postponed due to adverse market conditions.

State-controlled Finmeccanica, which has said previously it was looking to sell 1 billion euros of assets to cut debt and avoid a credit rating downgrade, was expected to discuss asset sales at its year-end board meeting on Wednesday.

(Reporting by Sophie Sassard, Tim Hepher, Massimo Gaia, Stephen Jewkes and Elisa Anzolin; Writing by Lisa Jucca; Editing by Dan Lalor)