UPDATE 1-IHI, A123 Systems to ally in lithium-ion batteries

* Batteries will be used for electric, hybrid cars

* Aim to provide batteries also for ships in the future

* IHI shares fall 0.6 pct vs 1.4 pct drop in the Nikkei (Recasts)

TOKYO, Oct 28 - Japan's IHI Corp said on Wednesday that it plans to join hands with U.S. battery maker A123 Systems Inc in the lithium-ion battery business.

A123, which made its debut on the Nasdaq stock market in September, develops batteries for electric vehicles and plug-in hybrids and works with carmakers such as BMW, Chrysler Group LLC and General Motors.

"We also aim to provide those batteries for vessels in the future," an IHI spokesman told Reuters, declining to provide more details. The Nikkei business daily said IHI will procure batteries from A123 and include them in its power supply systems.

The two companies will hold a briefing at 3:30 p.m. (0630 GMT) on Wednesday.

Lithium-ion batteries are a hot area of investment for many Japanese companies.

Sanyo, the world's largest maker of rechargeable batteries and set to be taken over by Panasonic, is developing lithium-ion batteries for cars with Volkswagen AG.

Toshiba Corp said on Tuesday that it would invest 25 billion yen ($273.7 million) to build a new lithium-ion battery plant in Japan.

Mitsubishi Heavy Industries Ltd also plans to spend 10 billion yen to build a test plant for the production of lithium-ion batteries..

IHI's shares fell 0.6 percent at 180 yen, outperforming a 1.4 percent decline in the benchmark Nikkei average.