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HARARE (Reuters) - Zimbabwe signed an investment protection agreement with neighbouring South Africa on Friday in a bid to draw funding to fix its battered economy, but doubts remain over the security of foreign-owned assets.

The Bilateral Investment Promotion and Protection (BIPPA) treaty took five years to hammer out, but Zimbabwe's new unity government pushed for the pact with the continent's economic powerhouse as part of efforts to raise over $10 billion required to rebuild its economy.

President Robert Mugabe and long-time rival Morgan Tsvangirai, now prime minister, set up a power-sharing government in February following last year's failed elections.

South African trade minister Rob Davies and Zimbabwe's economic planning minister, Elton Mangoma, signed the deal at a ceremony in Harare attended by businessmen and government officials from both countries.

"This BIPPA is signifying to the world that Zimbabwe is open and ready for trade and investment," Mangoma said.

"There have been arguments that Zimbabwe cannot be trusted because it cannot even sign an agreement with its neighbour, a regional powerhouse. That argument falls away."

Among other things, the agreement protects investments from expropriation and provides the opportunity for aggrieved investors to seek redress in international courts.

It does not include farms seized from South African citizens under Mugabe's land reforms.

Davies said South Africa had secured a deal with South African farmers' unions opposed to a treaty that excluded land investments. The farmers had sought a court order blocking the signing of the pact.

"Everybody now seems to appreciate that this is a positive agreement which provides a level of investor confidence that did not exist before. There will be recourse to a whole range of mechanisms in the event of a dispute," Davies said.

Zimbabwe has rattled foreign investors with its seizure of white-owned farms to resettle landless blacks and, latterly, with the enactment of a law seeking to transfer control of foreign-owned firms to local blacks.

But Mangoma reiterated the government would not nationalise foreign assets.

"We will not nationalise anybody's business, that's why we are signing this BIPPA," he said. "We are departing from the past and do not want to be judged by what previous governments have done."

Davies said Zimbabwe was South Africa's third largest trading partner in Africa, with trade of 21 billion rand in 2008.

South African firms dominate Zimbabwe's mining industry, with the world's top two platinum miners -- Anglo Platinum and Impala Platinum -- operating in the country. South Africa's Metallon also controls Zimbabwe's largest gold-mining firm.

With Davies were Dan Simelane, head of African Rainbow Minerals' (ARM) exploration unit, and Nonkululeko Nyembezi-Heita, chief executive of Arcelor Mittal South Africa.

Arcelor Mittal SA is one of two foreign firms being considered by Harare to take over Ziscosteel, a state-run firm with potential to produce 1 million tonnes of steel per year.

ARM is eyeing the coal and platinum sectors.

"As a potential investor in Zimbabwe, we're always on the look-out for developments here, but I must say today is a big step forward in terms of raising investor confidence," Nyembezi-Heita told Reuters.