Expansion deal reached on Hong Kong Disneyland-report

June 25 (Reuters) - Hong Kong has reached a deal with the Walt Disney Co (DIS.N) to expand the local Disney theme park, seen as necessary to bolster the park's long-term prospects against a Shanghai rival, a newspaper reported on Thursday.

The agreement is expected to be announced by June 30, with details of the deal to be laid out to local legislators in a special meeting, the Hong Kong Economic Times reported.

A spokeswoman for the Commerce and Economic Development Bureau, which oversees the Disneyland project, confirmed to Reuters that a special meeting had been called, but disclosed no specifics.

The report said the deal was expected to be worth HK$7 billion ($903.3 million) of which HK$4 billion would be used for expansion.

The size of Hong Kong Disneyland, the smallest of Disney's magic kingdoms, is expected to almost double, with construction to begin within a year, pending approval from the city's legislative council in July, the newspaper reported.

Hong Kong's Financial Secretary John Tsang travelled to Los Angeles in May, where he met senior Disney executives. The trip is seen to have paved the way for the breakthrough after Disney earlier said it would stall any expansion amid the credit crunch.

There was no immediate response from Tsang's office.

When contacted by Reuters, a Disney official in the United States said discussions are ongoing, without giving any specifics.

The Walt Disney Co (DIS.N) earlier indicated it would likely invest more capital in Hong Kong Disneyland and allow the Hong Kong government to convert its loans to equity to maintain its majority share of the theme park, a source involved in their talks told Reuters earlier.

The Hong Kong government, which owns 57 percent of the underperforming resort, desperately needs the expansion to boost flagging attendance, with a much larger rival Disneyland expected to be built in Shanghai in 2014 that could draw much visitor traffic from the burgeoning mainland China market.

"At this stage, we have to support the expansion otherwise it will be very difficult to compete with Shanghai in five to six years time," said legislator Fred Li of the Democratic Party, who said his party backed the expansion as long as Disney boosted its financial transparency in future on attendance figures. (Additional reporting by Gina Keating in Los Angeles) (Reporting by James Pomfret; Editing by Chris Lewis and Muralikumar Anantharaman)