UPDATE 1-Toshiba, IHI to tie up in nuclear business-Yomiuri

(Adds denial by the two companies)

TOKYO Feb 29 (Reuters) - Toshiba Corp (6502.T) and IHI Corp (7013.T) are in talks on an alliance in the energy and plant business, including nuclear power plants, in which IHI may spin off its business in the area and Toshiba could take stake in a new company, the Yomiuri newspaper reported on Friday.

The two firms are also considering the possibility of merging their energy businesses into the new company, which would have combined annual sales of about 1 trillion yen ($9.5 billion), surpassing those of the industry leader Mitsubishi Heavy Industries Ltd (7011.T), the paper said, citing several sources.

Both Toshiba and IHI said they were not in talks on such an alliance.

The Yomiuri said the two firms aim to expand their share in the global energy market, which has been seeing rising demand for nuclear power amid growing concerns for global warming.

By allying with IHI, Toshiba, which owns nuclear power plant firm Westinghouse, hopes to bolster its competitive edge against rivals such as General Electric (GE.N), Areva CEPFi.PA, Hitachi Ltd (6501.T) and Mitsubishi Heavy, it said. (Reporting by Taiga Uranaka)