COPENHAGEN (Reuters) -Volvo Group on Tuesday said it would sell its 70% stake in China's Shandong Lingong Construction Machinery Co (SDLG) and buy its European construction equipment supplier Swecon as it looks to refocus on core brands.

Volvo said that its construction equipment (CE) unit would sell the stake to a fund controlled by minority partner Lingong Group for 8 billion Swedish crowns ($837 million).

In a separate statement Volvo said that it would buy engineering consultancy Swecon's business operations in Sweden, Germany and the Baltics for 7 billion crowns ($731 million).

Volvo is focusing on premium and more customer-focused brands, tightening control over its European business while stepping back from China's mid-market while the industry grapples with changing consumer demand and trade tensions.

"With increasing competition, the need to transform to new technologies as well as strengthening the interaction with customers, we need to re-focus," Melker Jernberg, head of Volvo CE, said in a statement on the Chinese transaction.

Volvo shares were up 2.3% in mid-morning trade.

Volvo CE accounted for 17% of group revenues in 2024, while SDLG contributed around 2%, the company said.

With Swecon under full ownership, Volvo will be able to manage the majority of its European construction equipment business directly, said Bernstein in a note to clients.

Analysts said the exit from SDLG reflects the broader challenges of operating in China's slumping construction market, while the Swecon deal boosts Volvo's control in Europe.

Mounting debt from Chinese property developers has dragged down real estate prices and triggered a construction downturn, hitting demand for heavy machinery.

($1 = 9.5583 Swedish crowns)

(Reporting by Stine Jacobsen, Jesus Calero and Vera Dvorakova, editing by Terje Solsvik and Louise Rasmussen)