(Updates with more Treasury details, background)

By Tabassum Zakaria

WASHINGTON, July 25 (Reuters) - President George W. Bush on Friday expanded U.S. sanctions against the "illegitimate" Zimbabwe government of President Robert Mugabe and the United States moved to freeze assets of 17 state-controlled businesses.

"This action is a direct result of the Mugabe regime's continued politically motivated violence," Bush said in a statement.

Mugabe won a landslide victory last month in an election condemned by Western nations and boycotted by opposition leader Morgan Tsvangirai, who cited government-sponsored violence and intimidation.

The Treasury Department moved to freeze assets under U.S. jurisdiction of 17 business enterprises controlled by the Zimbabwean government.

The Treasury said it was banning Americans from doing business with the enterprises, which included the Agricultural Development Bank of Zimbabwe and producers of minerals, steel, textiles, chemicals and other services.

Mugabe, himself, has been under U.S. sanctions since March 2003, American officials said.

Bush said he took the step to expand sanctions after Mugabe's government disregarded calls from the African Union, the United Nations and the Southern African Development Community to stop attacks against opposition supporters and officials.

"Should ongoing talks in South Africa between Mugabe's regime and the Movement of Democratic Change result in a new government that reflects the will of the Zimbabwean people, the United States stands ready to provide a substantial assistance package, development aid, and normalization with international financial institutions," Bush said.

Mugabe's party and two factions of the opposition Movement for Democratic Change have started talks under South African mediation on a possible power-sharing deal to break a deadlock over Mugabe's victory in a June 27 run-off election.

The opposition says 120 of its supporters have been killed and many others tortured and beaten since the first round of the elections on March 29, which Tsvangirai won but fell short of the margin needed to avoid a run-off.

Mugabe blames the opposition for the violence.

African governments see a national unity government as the only way to reverse Zimbabwe's economic meltdown and avert an escalation of political violence.

Bush authorized using up to $2.5 million from the U.S. Emergency Refugee and Migration Assistance Fund to help Zimbabwean refugees and asylum seekers displaced by the violence.

Russia and China this month blocked a U.N. Security Council resolution to impose sanctions on Zimbabwe, led by the United States and Britain, in response to the violence. (Additional reporting by David Lawder; Editing by Chris Wilson)

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