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UPDATE 1-Constellation to build major brewery in southeastern Mexico - sources

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MEXICO CITY, Dec 7 (Reuters) - U.S. brewer Constellation Brands is going to install a major plant in southeastern Mexico following the cancellation of a brewery it was building on the country's northern border, two people familiar with the matter said Tuesday.

Earlier, the Wall Street Journal reported the investment would be worth some $1.3 billion, and the news is a boost for the government of leftist President Andres Manuel Lopez Obrador, who has had an often combative relationship with business.

The sources confirmed the newspaper's report, which would herald one of the biggest single outlays of foreign direct investment since Lopez Obrador took office three years ago.

A spokesperson for Constellation Brands said the company had been working with Mexican officials on plans to meet its long-term brewing capacity needs in the southeastern part of the country where there is plenty of water and labor.

"Discussions have been productive and remain ongoing," the spokesperson said.

The company last year had to abandon a largely completed brewery worth more than $1 billion it was building in the arid border city of Mexicali after local residents rejected it in a contentious referendum centering on water usage.

Lopez Obrador had encouraged the referendum, and he said earlier this year that Constellation Brands had agreed to build a new plant in Mexico's poorer southeast, but gave no details.

One of the sources said the plant would likely be built either in the Gulf state of Veracruz or in the neighboring region of Tabasco, the home state of Lopez Obrador. (Reporting by Dave Graham Additional reporting by Stefanie Eschenbacher and Raul Cortes, Editing by William Maclean)

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