* Deal could be announced as early as Monday
* Uber China to have 20 pct stake in new entity
* Didi also to invest in $1 bln in Uber outside China
China's dominant ride-hailing firm Didi Chuxing will merge with Uber's business in China in a $35 billion deal that will end bruising competition between the two firms, according to a source familiar with the matter.
The deal between the pair - which have been spending heavily to gain market share and battling fiercely for passengers - is nearly complete and could be announced as early as Monday, said the source, who declined to be identified because the deal is not yet public.
The new entity combines Didi's most recent valuation of $28 billion and Uber China's $7 billion valuation for the $35 billion market capitalisation.
Uber China investors will have a 20 percent stake in the new company, the source said.
Uber declined to comment.
In addition, Didi will invest $1 billion in San Francisco-based Uber, which operates globally outside China, the source said.
Didi last year invested $100 million in Lyft, Uber's main rival in the US It has also formed an alliance with Lyft, India's ride service Ola and Southeast Asia's ride-hailing startup Grab in an effort to compete with Uber's global dominance.
But China has been a challenging market for Uber. The company was burning through more than $1 billion a year there in a price war with Didi. Uber is profitable in the US, Canada and about 100 other cities.
Bloomberg and the Wall Street Journal reported the deal earlier.
The deal comes after China last week issued guidelines that establish a long-awaited framework for the booming ride-hailing industry and remove uncertainty for firms such as Didi and Uber.
Didi itself was created last year from the merger of two companies backed separately by e-commerce giant Alibaba Group Holding Ltd and social network firm Tencent Holdings Ltd.
