(Refiles to add China in the lead (For more stories on Google in China click [ID:nSGE60C01H] (Adds background and details on negotiations)

SHANGHAI, Jan 18 (Reuters) - Google GOOG.O is investigating whether one or more employees may have helped facilitate a cyber-attack from China that the U.S search giant said it was a victim of in mid-December, two sources told Reuters on Monday.

Google, the world’s most popular search engine, said last week it may pull out of the world’s biggest Internet market by users after reporting it had been hit by a “sophisticated” cyber-attack on its network that resulted in theft of its intellectual property.

The sources, who are familiar with the situation, told Reuters that the attack, which targeted people who have access to specific parts of Google networks, may have been facilitated by people working in Google China’s office.

“We’re not commenting on rumour and speculation. This is an ongoing investigation, and we simply cannot comment on the details,” a Google spokeswoman said.

Security analysts told Reuters the malicious software (malware) used in the Google attack was a modification of a trojan called Hydraq. A trojan is malware that, once inside a computer, allows someone unauthorised access. The sophistication in the attack was in knowing whom to attack, not the malware itself, the analysts said.

Local media, citing unnamed sources, reported that some Google China employees were denied access to internal networks after Jan. 13, while some staff were put on leave and others transferred to different offices in Google’s Asia Pacific operations. Google said it would not comment on its business operations.

TALKS SOON

Google, which has denied rumours that it has already decided to shut down its China offices, said on Monday it contacted the Chinese government last week after the announcement.

“We are going to have talks with them in the coming few days,” Google said.

Google is also still in the process of scanning its internal networks since the cyber-attack in mid-December.

China has tried to play down Google’s threat to leave, saying there are many ways to resolve the issue, but insisting all foreign companies, Google included, must abide by Chinese laws. [ID:nTOE60E00I]

Washington said it was issuing a diplomatic note to China formally requesting an explanation for the attacks.

The Google issue risks becoming another irritant in China’s relationship with the United States. Ties are already strained by arguments over the yuan currency’s exchange rate, which U.S. critics say is unfairly low, trade protectionism and U.S. arms sales to Taiwan.

Washington has long been worried about Beijing’s cyber-spying programme. A congressional advisory panel said in November the Chinese government appeared increasingly to be penetrating U.S. computers to gather useful data for its military. (Reporting by the Shanghai newsroom; Editing by Sanjeev Miglani)