CORRECTED - UPDATE 1-Sun Micro falls, source says IBM talks collapse

(Corrects Reuters Instrument Code (IBM.F) in paragraph two) (Previously corrected to add sourcing to headline and bullet points)

* Talks collapse over price - source

* Unclear if talks will resume - source

* Sun Micro falls 25 pct in Frankfurt, IBM down 0.4 pct

FRANKFURT, April 6 (Reuters) - Shares of Sun Microsystems Inc (JAVA.O) dropped on Monday after a source with knowledge of the matter told Reuters that IBM's (IBM.N) talks to acquire its smaller rival broke down.

Sun Microsystems' Frankfurt-listed shares (JAVA.F) were down 23.9 percent at 4.74 euros by 0816 GMT, while IBM's stock there (IBM.F) was down 0.4 percent at 75.50 euros.

The source had told Reuters on Sunday the talks had collapsed after Sun rejected IBM's $7 billion offer. [ID:nN05344764]

The buyout was seen as a means of survival for the Silicon Valley company, which has been losing market share. A deal would also have helped IBM compete more effectively against rivals such as Hewlett-Packard Co (HPQ.N).