Eastman Kodak Co will sell its stake in Lucky Film Co Ltd, ending a four-year partnership with China's biggest photo film manufacturer, the two companies said on Tuesday.

The move brings to a close what was once one of Kodak's most optimistic endeavors, derailed by the rapid rise of digital cameras and resulting global decline in demand for film.

Kodak, aiming to expand its second-largest market, had pursued the Chinese company for five years before they agreed in 2001 to a 20-year partnership.

Under an agreement signed last week, Kodak will sell its 20 percent stake in the Shanghai-listed company to a Chinese venture capital firm based in the southern Chinese city of Guangzhou for $37 million, according to a statement from Lucky Film.

The 20 percent stake includes a 7 percent interest that Kodak is buying from Lucky Film's state parent under an agreement signed several years ago, it added.

The original 2001 pact called for Kodak to contribute $100 million in cash plus technology and equipment to upgrade Lucky's outmoded production facilities. Kodak had hoped that consumers in China would take to film photography before moving to digital cameras.

As a result of the unraveling of the partnership, Kodak said in a filing with the U.S. Securities and Exchange Commission on Tuesday that it expects to record a non-cash asset impairment charge in the fourth quarter of about $42 million.

Kodak is undergoing a lengthy and expensive transformation into a maker of digital cameras and printing services. Since late 2003, the Rochester, New York-based company has focused on digital devices, hoping to outpace the drop in demand for film.

Lucky Film has also seen a sharp drop in its earnings in recent years. Its profits recovered a little last year, which it mainly attributed to growth of its digital photographic business.

Kodak's pullout from Lucky Film would also allow the Chinese company to kick off a long-awaited stock reform that will allow holders of its unlisted shares to float their shares on the stock exchange, Chinese state media said. (Reporting by Charlie Zhu in Shanghai and Franklin Paul in New York, editing by Steve Orlofsky)

China