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UPDATE 3-Bunge, Glencore discuss partnership as grain sector sours

(Recasts with talks focusing on partnership, not wholesale acquisition, adds comments from investor and Glencore JV partners)

CHICAGO, May 23 (Reuters) - U.S. grains trader Bunge Ltd talked with the agricultural unit of commodities trader Glencore Plc about setting up a North American partnership, not a sale of the entire company, sources told Reuters on Tuesday.

Shares of Bunge soared on media reports that Glencore Agriculture Limited, a joint venture owned by Glencore and two Canadian pension funds, had approached White Plains, New York-based Bunge about a "possible consensual business combination."

Glencore said on Tuesday that "discussions may or may not materialize and there is no certainty that any transaction will occur." It is unclear where the discussions stand, the people familiar with the matter said on condition of anonymity because they were not authorized to speak to the media.

Such talks fueled ongoing speculation that, after a string of poor results, the world's big grain trading houses are ripe for a wave of consolidation similar to the mergers and acquisitions in the farm chemicals and seed industries.

Swiss-based Glencore, also a miner, did not offer any further details on Tuesday. Bunge declined to comment.

Large grain traders have struggled in recent years as a global oversupply and thin trading margins have squeezed their core commodity trading operations, including those of Bunge and rivals Archer Daniels Midland Co, Cargill Inc and Louis Dreyfus Co.

The companies, collectively known as the ABCDs of global grain trading, are also facing stiffer competition from players such as China's COFCO Corp, which recently scooped up Noble Agri and Nidera, and Japan's Marubeni Corp, which bought U.S. grain handler Gavilon in 2012.

Merger talk has been roiling the sector for months as commodities prices remain stubbornly low. A series of bumper grain and soybean harvests in the United States and South America also mean there is little chance of a supply disruption that global grain traders could profit from.

Bunge Chief Executive Soren Schroder said earlier this month that the sector was ripe for consolidation and that Bunge was prepared to take the lead in any dealmaking. He did not specify whether Bunge would be a buyer or a seller.

Bunge had a market capitalization of $9.84 billion at Monday's close. The stock jumped as much as 17.6 percent to a 2-1/2-month high before closing up 16.6 percent, the biggest percentage gain on the day in more than eight years, at $81.70.

If the two entities were to form a partnership, it could transform Glencore into a major U.S. agricultural company. Glencore pursued Louis Dreyfus' grains business in recent years, but failed to strike a deal.

The company bolstered its Canadian operations with a $6 billion deal for grain handler Viterra Inc in 2012, but spun off its grains business in 2015 and later divested 49 percent of Glencore Agri to the Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corp (bcIMC) for more than $3.1 billion.

CPPIB and bcIMC declined to comment about a possible partnership with Bunge.

Bunge's potentially high price tag, with a valuation of around $11 billion on Tuesday, raised questions about whether a deal could be struck.

Ken Morrison, a veteran grain trader who writes a commodity trading newsletter, said he bought a "meaningful" number of Bunge shares when prices dove after an earnings miss earlier this month. He sold about half of his shares on Tuesday.

"I think that the chances of a deal coming together at a value that is acceptable to Bunge is less than 50/50," he said. (Additional reporting by Chris Prentice and Greg Roumeliotis in New York, Sruthi Shankar in Bangalore; Editing by P.J. Huffstutter and Richard Chang)