LONDON, June 17 (Reuters) - The British government is

set to finalise a 500-million-pound ($679 million) rail steel

deal between Network Rail and British Steel, aiming to protect

thousands of jobs at a steelmaking plant in Eastern England that

was brought under state control earlier this year.

The contract will see British Steel supply more than 337,000

metric tons of rail track over five years, the government said

on Tuesday, two months after seizing operational control of the

steelmaker from its Chinese owners, Jingye, to prevent the

closure of its blast furnaces in Scunthorpe.

"This is great news for British Steel and a vote of

confidence in the UK's expertise in steelmaking, which will

support thousands of skilled jobs for years to come," business

minister Jonathan Reynolds said.

The contract, which starts in July, will provide publicly

owned Network Rail with 80% of its rail needs and will build on

the government's 2.5-billion-pound steel fund set up to boost

steel production over the next five years, the statement said.

To ensure security of supply, Network Rail is set to award

smaller contracts to some European manufacturers for around

80,000 to 90,000 metric tons of rail, which will supply

specialist rail products alongside British Steel, the statement

said.

The sector, which has been grappling with high costs and

tough competition, last month called for clarity on when U.S.

tariffs will be lifted under a landmark U.S.-UK deal agreed in

May to remove President Donald Trump's steel levies.

($1 = 0.7363 pounds)