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* Deal would further Sun Life's expansion in Asia
* Khazanah would gain foothold in insurance
* Discussions in early stages - banking sources (Adds details on talks, no comment from companies, background)
By Praveen Menon and Saeed Azhar
KUALA LUMPUR/SINGAPORE, July 19 (Reuters) - Canada's Sun Life Financial Inc and Malaysian sovereign wealth fund Khazanah Nasional are in talks to buy the insurance business of Hong Leong Financial Group Bhd, two banking sources said on Tuesday.
The deal, valued by the sources at about 3 billion ringgit ($752.26 million), would allow the Canadian firm to expand further into growing Asian markets while Khazanah would get a strong foothold in the insurance business.
Khazanah and Sun Life are considering making a joint offer for Hong Leong's 70 percent stake in Hong Leong Assurance Berhad and its 65 percent stake in Islamic insurer Hong Leong MSIG Takaful Berhad, the sources said.
The remaining stakes in both companies are held by Japan's Mitsui Sumitomo Insurance Co.
Hong Leong Financial Group, which is controlled by Malaysian billionaire Quek Leng Chan, said earlier this month that it had received approvals from the central bank to start negotiating stake sales in its insurance businesses. The firm has six months to complete the negotiations.
The discussions with Sun Life and Khazanah were in the early stages, one of the sources said. The sources declined to be identified because the discussions were private.
Khazanah and Sun Life declined to comment.
Hong Leong spokeswoman Dau Ming Seling said there were "no definitive developments at this stage" and only initial talks with potential buyers whom she declined to name.
Hong Leong Assurance Berhad is Malaysia's second-largest general insurer, according to its website.
Malaysian banks are facing risks from slowing regional economic growth, falling earnings and asset quality deterioration from exposure to energy companies as oil prices slumped.
Moody's Investors Service said in May it expected Malaysian banks' profitability to deteriorate over the following 12-18 months and slower revenue growth to hurt their return on assets.
Sun Life and Khazanah previously teamed up to purchase Aviva's Malaysian insurance joint venture with lender CIMB for about $563 million.
In the last three years, Sun Life has made acquisitions in Malaysia, India, Vietnam and Indonesia and has said it will consider more deals in the region.
In March, it took full control of its Indonesian business by buying out partner CIMB Group.
Meanwhile Khazanah, which has a portfolio valued at 150.2 billion ringgit, has been building up presence in the insurance sector. Apart from Aviva's Malaysian operations, the fund bought a 90 percent stake in Turkish health insurer Acibadem Sigorta for $252 million in 2013. ($1 = 3.9870 ringgit) (Editing by Stephen Coates)