TOKYO (Reuters) - Japan's Nippon Steel Corp. is planning to buy a stake of under 2 percent in Brazil's largest steelmaker, Usinas Siderurgicas de Minas Gerais SA (Usiminas), a source close to the deal said on Sunday.

The deal will be finalized early this week, the source said, without giving further details.

The Japanese firm plans to purchase a 1.7 percent stake by the end of the year in a move aimed at boosting its supply capacity amid a global realignment of the industry, the business daily Nihon Keizai Shimbun said on Sunday.

Details on the price and conditions of the deal have yet to be decided, the Nikkei said. Shares in Usiminas, which has a market capitalization of about U.S.$8.6 billion, last closed at 75.45 reais.

Nippon Steel, the world's third largest steelmaker, is also considering taking part in a blast furnace project planned by the Brazilian firm, the report said.

Usiminas is a joint venture between Japanese and Brazilian firms and is a major supplier of steel to the Brazilian auto industry.

Tokyo-based Nippon Usiminas Co, itself set up by several Japanese steelmakers and other companies, is a major shareholder, with a 19.4 percent stake, the paper said.

Nippon Steel uses materials supplied by Usiminas to manufacture sheet steel in Brazil for sale to Japanese and other automakers.

Usiminas plans to spend up to 400 billion yen ($3.39 billion) on a new blast furnace with an annual production capacity of 5 million tons, in a plan to boost its crude steel output by 50 percent by 2010, the Nikkei said. "We are considering the merits of various measures in cooperation with Usiminas," Nippon Steel said in a statement on Sunday. "Nothing has been decided."

The deal will be officially announced this week, the Nikkei said.