UPDATE 2-Venezuela defers Santander nationalization-sources

(Adds more source comments, details on bank takeover)

By Ana Isabel Martinez

CARACAS, March 4 (Reuters) - Venezuela will defer for at least this year nationalizing a local banking unit of Spain's Banco Santander SA (SAN.MC) as the global financial crisis cuts into oil revenue, government and bank sources told Reuters.

The delay is the latest sign President Hugo Chavez's government is struggling to stave off the impact of the world economic slowdown, forcing him to put off nationalizations that have been a centerpiece of his socialist revolution.

Santander, Europe's second-largest lender, had said it was in talks to sell its local unit to the government, which has already taken over oil projects, cement and steel makers, a telecommunications company and a large private power producer.

"I don't believe it can happen this year definitely and we have talked to them about this," a top-ranking government official told Reuters on Wednesday about the Santander bid.

A source at the bank said last week the nationalization would be postponed.

"The government has said it is still interested, but for the moment negotiations are suspended," the bank source said.

Santander in Spain had no immediate comment.

Nationalizations are popular with many Venezuelans who have seen Chavez wield his country's oil wealth to finance health and welfare programs for the poor. But his state takeovers have generally alarmed foreign investors.

Fresh from a referendum victory in February that allows him to stay in office as long as he wins elections, Chavez is facing a slowing economy, soaring inflation and a need to curb state spending after oil prices plummeted $100 a barrel from July last year.

At the start of the year, he shifted $12 billion from the central bank's reserves to fund government spending.

Santander previously said it was in talks with a group of private investors in Venezuela. But Chavez, a former soldier allied with Communist Cuba, said he would buy the bank after Santander asked for permission to sell the unit.

The Venezuelan leader, who often criticizes free-market ideas and believes the state should control the economy, has long expressed an interest in owning a large bank to channel government funds.

His government has often threatened to nationalize local private banks if they do not increase loans to the domestic market. Taking over the Santander unit would give the state control over Venezuela's third largest bank in deposits. (Writing by Patrick Markey in Bogota, editing by Toni Reinhold and Andre Grenon)