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UPDATE 1-Shares in Japan's Chugai surge on report of Roche buyout offer

(Adds fund manager comment on market reaction, source comment casting doubt on buyout)

TOKYO, Aug 18 (Reuters) - Shares in Japan's Chugai Pharmaceutical Co Ltd jumped 15 percent on Monday on a media report that its 60-percent shareholder, Roche Holding AG , was in talks to buy the rest of the company for about $10 billion.

Chugai denied over the weekend that it was in talks with Roche over a buyout but investors dismissed the statement, sending the shares limit-up in early trade, to a record 4,015 yen, before closing up 15.4 percent at 3,825 yen.

"The market appears to believe the report but since it's not 100 percent certain, some took profit to send the shares off their high," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

A source with direct knowledge of the matter said on Monday that Roche was not considering such a deal, citing price and saying both companies were happy with the current arrangement.

The reported $10 billion price tag would represent a premium of about 41 percent over Chugai's closing price on Friday.

European brokerage Kepler Cheuvreux said a $10 billion buyout of Chugai would be too expensive and "would hardly be exciting from a strategic perspective".

"We would be surprised if Roche was launching a hostile bid without trying to approach the Chugai board and attempting to find an amenable price for all," it said in a research note.

Bloomberg said the Swiss group could announce a deal to take full control of its Japanese partner for oncology and arthritis drugs as early as this week. A spokeswoman for Roche declined to comment on the report.

The source told Reuters that even at Friday's closing share price of 3,315 yen, which would value the remaining stake in Chugai at about 720 billion yen ($7 billion), an acquisition would be too expensive. The source declined to be identified because he was not authorized to speak to the media.

Speculation that Roche, the world's largest producer of cancer medicines, might swallow Chugai had swirled after Roche made a similar buyout of U.S. biotech group Genentech in 2009. But Roche and Chugai have made repeated denials.

Chugai's valuations - whether measured by price-to-earnings, price-to-book or price-to-cash flow - already exceed the median valuations of its Japanese peers, Thomson Reuters data shows.

Barclays said in a report that a $10 billion acquisition would be difficult to justify. Roche would retain an additional 200 million Swiss francs ($220 million) a year in shareholder payments, the investment bank said.

Analysts also said Roche may be looking to profit further from Chugai's drugs line-up and pipeline, including Actemra for rheumatism and ACE910 for hemophilia. ($1 = 102.2900 Japanese yen) ($1 = 0.9026 Swiss franc)

(Additional reporting by Chris Gallagher; Editing by Edmund Klamann and Mark Bendeich)