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* Deal values SiRF at $136 million

* CSR says Q4 sales $140.1 mln vs target $140-160 mln

* Says demand will remain weak in 2009

* CSR shares up 6.5 pct; SiRF up 59 pct

(Adds further reaction, updates shares)

By Paul Sandle

LONDON, Feb 10 (Reuters) - British Bluetooth wireless chip company CSR Plc () said on Tuesday it had agreed to buy U.S. Global Positioning System chip firm SiRF Technology SIRF.O in a $136-million, all-share deal to boost its radio chips offering in a slowing technology market.

CSR, which makes single chip Bluetooth wireless devices, said the deal would lead to a stronger combined balance sheet, better customer relationships and technology leadership.

On Tuesday CSR reported fourth-quarter revenue at the bottom of the range forecast by the company and said it expected demand to remain weak during 2009.

However, Chief Executive Joep van Beurden said the combined group would have the necessary product range once global markets recovered.

"GPS (in cellphones) is expected to grow very rapidly over the coming years," he told reporters in a conference call.

"Our customers are asking for combinations of Bluetooth and GPS."

Shares in CSR reversed early losses, following Q4 sales at the bottom of forecasts, and were 6.5 percent higher at 199 pence at 1444 GMT as analysts said the deal made sense.

"It's a good strategic move from them, they are integrating a lot of radio technologies," said Ben Wood, research director at CCS Insight.

Lee Simpson, analyst at Jefferies International, said although the deal was not without risk, it could deliver cost, product and strategic synergies.

"CSR was difficult to like as a Bluetooth-only play, while SiRF was doubly unlikeable as a GPS play," he said. "It makes good sense -- radio chips are combining Bluetooth, GPS and Wi-Fi, and CSR needs to own that space."

Leading cellphone maker Nokia () forecasts 50 percent of its models sold this year will be equipped with GPS chips.

Such chips are currently used mostly in top-end cellphones, but Nokia and others are increasingly looking to use them in mass-market phones as well.

CSR, whose chips are in Research In Motion's () Blackberry Storm and Bold models, confirmed its latest Bluecore 7000 chip would be shipped in Nokia's devices from the third quarter, which would help it regain market share.

Analysts said CSR's SiRF acquisition could indicate that Nokia was moving towards hardware-based GPS technology, an area in which CSR has lost share to key competitor Broadcom ().

NO HURDLES TO DEAL

Shareholders in San Francisco-based SiRF would receive 0.741 CSR shares for each of their shares, a 91 percent premium on the closing price on Feb. 9, valuing SiRF at about $136 million, CSR said.

Shares in SiRF were 60 percent higher at $1.73 in New York at 1446 GMT.

Van Beurden said he foresaw no competition hurdles to the deal because the companies were strong in different segments.

SiRF Technology specialises in making chips for location-aware gadgets made by companies such as Garmin () and TomTom () for devices used by drivers, hikers and boaters.

The pioneer of GPS technology, the firm faces increasing competition from larger rivals like Texas Instruments () and Infineon ().

Van Beurden said the companies could shave $35 million - or 10 percent -- from their combined cost base following the merger, which is expected to close late in the second quarter.

CSR reported fourth quarter revenue of $140.1 million.

And the company reported a diluted loss per share of $0.05, against earnings of $0.26 for the same period a year ago, after it said global markets continued to worsen.

SiRF also reported disappointing fourth-quarter numbers on Tuesday, with revenue of $47.3 million down 53 percent year-on-year and below analysts' forecasts according to Reuters Estimates of $50.8 million. [ID:nWNAB0601]

CSR said it saw no short-term alleviation in pressure on consumer spending, and forecast first quarter revenue in the range $65 million to $85 million, about 50 percent down on the same period a year ago.

"The market continues to be very difficult," Chief Financial Officer Will Gardiner said in the conference call. "But we are bullish about regaining market share in the second half of the year." (Writing by Tarmo Virki; Editing by Greg Mahlich)