UPDATE 1-Bettencourt death stirs speculation about L'Oreal future

* Bettencourt family has 33 pct stake in L'Oreal

Nestle holds 23 pct of L'Oreal

* L'Oreal shares outperform, Nestle also up (Adds analyst comment, detail and background)

PARIS, Sept 22 (Reuters) - Shares in cosmetics group L'Oreal rose on Friday after the death of 94-year-old billionaire Liliane Bettencourt, who had the largest stake in the company and whose passing may alter the ties between L'Oreal and Nestle.

L'Oreal shares were up around 4 percent in early trading, the best performer on France's benchmark CAC-40 index and among the top stocks on the pan-European STOXX 600 index .

Bettencourt's family owns 33 percent of L'Oreal. Her daughter Françoise Bettencourt-Meyers, who sits on L'Oreal's board along with her own son, said in a statement that the family remained committed to L'Oreal and its management team.

Nestle, which owns just over 23 percent of L'Oreal, had agreed with the founding family that the two parties could not increase their stakes during Liliane Bettencourt's lifetime and for at least six months after her death.

"Speculation will now inevitably be re-ignited around Nestle's intentions towards its L'Oreal stake," analysts at Jefferies wrote in a research note.

"This holds out the prospect of L'Oreal either buying in the stake, or perhaps even Nestle buying L'Oreal outright."

Nestle shares were up 1.1 percent while shares in healthcare company Sanofi, in which L'Oreal also has a 9 percent stake, also advanced by around 1 percent.

Analysts said that while they did not expect any immediate changes to the relationships between Nestle and L'Oreal, a deal in the longer run could not be ruled out.

L'Oreal could also carry out share buybacks after Bettencourt's death, as Bettencourt had been unwilling to sell L'Oreal shares during her lifetime, which could also boost the L'Oreal stock price, added the analysts.

"We have recently argued that a major deal at Nestle is not on the cards for now, and the market is currently seeing Nestle as a seller of L'Oréal (after it sold an 8 percent stake in 2014)," JP Morgan analysts wrote in a note.

"Yet at a time of intense changes and portfolio reshuffling in the industry, a potential take-over of LOreal by Nestle cannot be discarded completely, and we believe the market debate around LOreal's future with or without Nestle is likely to intensify," added JP Morgan.

(Reporting by Sudip Kar-Gupta; Additional reporting by Blandine Henault; Editing by Laurence Frost/Keith Weir)