Australia's Woolworths' DIY joint venture

Australia's biggest retailer Woolworths on Tuesday announced a joint venture with US home improvement chain Lowe's to break into the hardware sector, in a major challenge to rival Wesfarmers.

Woolworths said it had made an 88 million dollar (73.8 million US) takeover offer for Australia's second-largest hardware distributor Danks as part of the venture, in which Lowe's will take a one-third stake.

Chief executive Michael Luscombe said the move into the 24-billion-dollar hardware field aimed to capitalise on surging demand for do it yourself, buoyed by government grants for first home buyers and record low interest rates.

"Woolworths is investing in this growth opportunity despite the current economic climate because we feel confident about the future of the Australian economy," he said in a statement to the market.

"As consumer confidence returns we look forward to playing an important role in the hardware industry to benefit customers with increased choice."

Luscombe said the partners hoped to acquire 150 sites within five years for new "big box" stores to rival market leader Bunnings, which is owned and operated by Wesfarmers.

The first store was expected to open in late 2011 and Lowe's would contribute one-third of the capital, he said.

Strong performance by Bunnings has steadied Wesfarmers as it tries to turn the suffering Coles supermarket chain to profit, but Woolworths' entry into the sector poses a significant threat.

Lowe's, which operates in the United States, Canada and Mexico, said there was tremendous opportunity to build a flagship brand in Australia's "underserved" hardware market.

Woolworths shares were up 3.61 percent to 29.02 in late afternoon trade, while Wesfarmers slumped 5.66 percent to 24.82 in a flat market.