DAR ES SALAAM, Sept 18 (Reuters) - The United States on Tuesday approved a $698 million five-year grant to boost Tanzania's road networks, power and water supply, the U.S. government's Millennium Challenge Corporation (MCC) said.

Investors and residents in the east African nation of 40 million people have long complained that unstable power supplies and poor roads were major impediments to business.

Tanzania's electricity supply was put to the test last year after drought in late 2005 led to a drop in hydropower generation and culminated in extensive power rationing. Many industries were forced to resort to costly diesel generators.

MCC said in a statement that Tanzania had developed a programme to address infrastructure problems.

"Chosen by Tanzanians, the investments to improve the transport, energy, and water sectors will provide a catalyst to reduce poverty and spur economic growth," MCC said in a statement issued in Washington.

Tanzania is among Africa's largest recipients of donor aid, with 42 percent of its 2007-08 budget funded by donors.

The Millennium Challenge says it gives grants to countries that have shown a commitment to reforms and are eligible for aid under the Millennium Challenge programme, which President George W. Bush's administration launched in 2002.

Other African nations that have received MCC grants are Madagascar, Cape Verde, Benin, Ghana, Mali, Mozambique, Lesotho and Morocco.

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