By Aradhana Aravindan

(Reuters) - Cooper Tire and Rubber Co <CTB.N> shareholders have approved the U.S. company's $2.5 billion sale to India's Apollo Tyres Ltd <APLO.NS>, clearing a major step for the creation of the world's seventh biggest tyre maker.

Completion of the deal faces likely delays, however, due to opposition from workers at Cooper's joint venture in China and U.S. labour issues. Still, the two companies say they expect to close the deal by year-end.

If the takeover is completed, the deal will be the second-largest U.S. acquisition by an Indian company and one of the top 10 outbound takeovers from Asia's third-largest economy, according to Thomson Reuters data.

Apollo hopes to gain a foothold in the world's two biggest auto markets, China and the United States, by buying Cooper. Cooper has plants in locations including the United States, Serbia and China.

Cooper Chairman and Chief Executive Roy Armes said in a statement the deal would create a "$6.6 billion leader in the tyre industry with a strong global footprint".

Workers at Cooper's China joint venture, Cooper Chengshan Tire Co in China's eastern Shandong province, have been striking against the deal for about three months, while its local partner has filed a lawsuit seeking to dissolve the business pact.

Separately, a U.S. arbitrator ruled Cooper could not sell two of its factories in the country until a collective bargaining agreement was reached between Apollo and members of the plants' union.

"Closing will require agreement with the United Steelworkers and we are working constructively to reach that goal while preserving the benefits of the original agreement," Apollo said in a statement after getting Cooper shareholder approval on Monday.

It said it has made "significant assurances" regarding the workers at the Cooper Chengshan plant, including assurances on jobs and on continued investment.

"Apollo hopes that Cooper will be able to resolve remaining economic issues with Cooper's JV partner led by Chairman Che (of Chengshan)," it added.

DEBT WORRIES

Shareholders stand to receive $35 per Cooper share, a premium of more than 40 percent to its price before the acquisition announcement on June 12. Cooper shares rose 3.5 percent to a high of $31.44 after the shareholder meeting on Monday, before closing at $30.80.

Apollo, whose shares have lost a quarter of their value since the deal was announced, dropped as much as 9 percent on Tuesday morning in a positive Mumbai market, as the approval re-ignited debt worries.

Cooper shares have slipped since rising close to the offer price as roadblocks to the acquisition emerged due to worries over the debt burden of the new owner.

"You're putting pressure on the company by the amount of debt that they want to use to buy this and so I think the market will always be skittish in the situation," said Chris DeMuth Jr, portfolio manager at U.S.-based Rangeley Capital. Rangeley Capital owns less than 5 percent in Cooper, he said.

Apollo plans to fund the acquisition entirely through debt, most of which will be raised through Cooper, whose market value is currently nearly four times that of the Indian company.

(Additional reporting by Mridhula Raghavan in BANGALORE and Sumeet Chatterjee in MUMBAI; Editing by Stephen Coates and Jeremy Laurence)