SMFG may invest in Barclays

By Taro Fuse and David Dolan

TOKYO (Reuters) - Japan's Sumitomo Mitsui Financial Group (8316.T) may invest about $926 million (468 million pounds) in Barclays (BARC.L), people familiar with the matter said on Friday, as subprime-hit Western lenders increasingly turn to Asia for funding.

Japan's third-largest bank is also considering a business alliance with Barclays in Asia, according to the sources, who spoke on condition of anonymity as the deal has not been finalised.

Barclays, Britain's No.3 bank, has lost more than $5 billion on assets tarnished by the U.S. subprime market crisis and credit crunch and said this week it plans to sell billions of pounds worth of shares to new and existing investors to rebuild its capital.

The bank is expected to raise about $8 billion from sovereign wealth funds and other investors, and then offer shareholders the right to buy on the same terms. If Sumitomo Mitsui opts to invest it would give the Japanese bank a stake of just over 2 percent.

Up to five outside investors are expected to participate, and backers could include existing Singapore-based sovereign wealth fund Temasek TEM.UL and China Development Bank, plus the Qatar Investment Authority.

By 9 a.m. Barclays shares in London were down 2 percent at 310 pence, alongside a weak banking sector.

Shares of Sumitomo Mitsui were little changed on the news, and some market participants said the investment was too small to become a major earnings driver.

"This is certainly an opportunity for Sumitomo Mitsui, but they don't seem to be taking full advantage of it," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.