LONDON (Reuters) - Japanese investment bank Nomura (8604.T: Quote, Profile, Research) is in exclusive talks to move its UK arm, including staff acquired from Lehman Brothers, from Canary Wharf to new offices in the City of London, the Financial Times newspaper reported on Monday.

Without citing sources the paper said the bank has decided to move back to the City because it sees the area as better for clients and staff. The move will come as a further blow to the Canary Wharf development, where Lehman was based.

A spokesman for Nomura declined comment on the report.

The paper said the move, due to be announced later this month, was the largest office deal in the square mile since 2005.

The deal will see the bank move its 4,000 UK employees into Watermark Place, an office being built on the Thames.

For Nomura's Japanese management, a shift to the Square Mile is symbolically important. The FT said Kenichi Watanabe, chief executive, is keen to brand the bank as a traditional City institution.

Once built, the offices will house 5,000 people, giving Nomura room for expansion. The bank has been ramping up recruitment in the UK after the Lehman acquisition last year more than doubled staff numbers.

According to the FT, Nomura is said to have struck good terms on the deal given the slump in the City office market. The bank is said to have agreed several years without rent as part of a 20-year lease.

The decision will provide a boost to the poor City property market, where rents have fallen more than a third since the peak in 2007 and vacancies have risen.

(Reporting by Stefano Ambrogi; editing by Matthew Lewis)