* Move seen as extension to last year's purchase of EDF assets
* CKI has more than $1.5 bln in cash
* No comment from Li units, E.ON
* E.ON shares up 1.3%, CKI rise 1.1%; Hongkong Elec gain 0.8%
(Updates with E.ON shares, no comment)
By Denny Thomas
HONG KONG, Jan 24 (Reuters) - Hong Kong's Li Ka-shing is set to make a 3.5 billion pound ($5.6 billion) bid for E.ON's UK power distribution networks, a newspaper reported, in a move highlighting the billionaire's expansion into steady-income generating assets.
The Sunday Times reported that Li Ka-shing was poised to make the bid for Britain's second-largest electricity distribution network, sending E.ON's shares up 1.3 percent.
Last year, Li Ka-shing used his investment vehicles Cheung Kong Infrastructure (CKI) and Hongkong Electric to buy the network arm of EDF for 5.8 billion pounds, marking EDF's biggest ever acquisition. .
Cheung Kong approached E.ON late last year about a bid and has hired Deutsche Bank to advise it, the report added. Cheung Kong and Hongkong Electric did not offer immediate comments, while Deutsche declined to comment.
An E.ON spokesman also declined comment.
"It's a good time to do such an acquisition as Li can extract a bargain when Europe is struggling for a recovery," said Linus Yip, chief strategist at First Shanghai Securities.
Li Ka-shing has been expanding his business empire by buying into regulated assets in developed countries. CKI, which has more than HK$10 billion ($1.5 billion) in cash, has flagged its interest in buying more infrastructure assets following the purchase of EDF's assets.
E.ON serves about five million customers in the UK. and the power networks are adjacent to EDF's networks CKI acquired last year.
Media reports have previously said Germany's E.ON had held talks with a group of investors including the Abu Dhabi Investment Authority, the Canada Pension Plan and Australia's Macquarie Group .
Shares in all the companies gained on the report. CKI finished up 1.1 percent, while Hongkong Electric gained 0.8 percent. The benchmark Hong Kong share index was down 0.3 percent. E.ON shares were up 1.3 percent by 0922 GMT.
E.ON'S ASSET SALES
E.ON, the world's largest utility, has announced 15 billion euros ($19.8 billion) in divestments through 2013 to counter a bleak earnings outlook and meet its promises to shareholders on minimum dividend payouts.
Cashed-up companies from China to India have been stepping up acquisitions into Europe and the United States as valuations in the developed world have been depressed due to slower growth.
CKI Group Managing Director Kam Hing Lam has previously said the company was looking at more than 10 projects and had cash on hand of more than HK$10 billion at the end of June last year.
Li ka-shing's business empire has kicked off the year with a restructuring. Last week, Hutchison Whampoa announced plans to spin off its holdings in two port assets, in a move expected to raise $6 billion through a Singapore listing. .
($1=.6250 Pound) (Additional reporting by Alison Leung, Donny Kowk and Tom Kaeckenhoff; Editing by Anshuman Daga and Lincoln Feast)