UPDATE 1-Finmeccanica to sell Avio stake to state-led fund

* Deal subject to Avio IPO before end 2012

* Avio had sales of over 2 bln euros in 2011

* Finmeccanica shares rise 1.2 pct (Releads, adds detail, background, shares)

MILAN, May 31 (Reuters) - Italy's Finmeccanica has agreed to sell its stake in aero-engine parts maker Avio to a state-controlled fund as it presses ahead with plans to sell around 1 billion euros ($1.24 billion) of assets this year to maintain its credit rating.

The defence and aerospace group said in a statement on Thursday it had reached an agreement to sell its 14 percent stake in Avio to the Italian Strategic Fund (FSI), which is controlled by state financing company Cassa Depositi e Prestiti (CDP).

The deal is subject to Avio being listed on the Milan stock exchange before the end of 2012, it said.

Finmeccanica, whose Chairman and CEO Giuseppe Orsi is under investigation for alleged international and domestic bribery, is suffering weaker defence electronics sales and a slowdown in its core markets and has tabled the sale of non-strategic assets to help cut debt.

Finmeccanica said FSI will take about 15 percent of Avio after the fund takes part in the initial public offering, that will include a capital increase, and buys the Finmeccanica stake.

On Monday the head of FSI said the fund was interested in investing in Avio should the shareholders decide on an equity operation.

Avio, which supplies engine parts for the Eurofighter Typhoon and engine makers General Electric and Rolls Royce, had sales of more than 2 billion euros in 2011.

Avio is owned by BCV Investments, 81 percent of which is owned by Cinven private equity.

Cinven bought Avio in 2006 in a deal that valued the company at about 2.6 billion euros.

At 0838 GMT Finmeccanica shares were up 1.19 percent while the Italian blue-chip index was up 0.88 percent. ($1 = 0.8069 euros) (Reporting by Stephen Jewkes; Editing by Hans-Juergen Peters)