* Less than the 25 percent stake markets had expected
* Swiss Re reiterates not considering issuing new capital
* CEO says SoftBank's ties to tech and China are interesting
* Swiss Re says also exploring a strategic cooperation (Adds more CEO, analyst comments, updates shares)
FRANKFURT, April 4 (Reuters) - Japan's SoftBank is in talks to buy a stake in Swiss Re that is unlikely to exceed 10 percent, the reinsurer said on Wednesday, less than the 25 percent markets had expected after recent news reports.
The reinsurance giant added talks were at an early stage.
The prospect of a smaller investment, and the preliminary status of talks, sparked a drop in Swiss Re's shares, which were down 3.2 percent at 93.28 Swiss francs at 1010 GMT. A 10 percent stake would cost about $3.4 billion at current market prices.
Swiss Re Chief Executive Christian Mumenthaler sounded enthusiastic about the potential deal, citing SoftBank's ties to China, focus on technology and access to 800 million customers.
"They are very overweight in Asia's high-growth market," he told investors when asked about SoftBank as a partner. "They are one of the biggest technology investors in the world."
"So there is enough here that you can imagine to be of interest to us," he said.
Expectations of a bigger investment by SoftBank rose last week after Bloomberg reported the Japanese firm was looking to buy a 25 percent stake in Swiss Re as part of its drive to broaden its investments, which include its $93 billion Vision Fund for technology projects.
"We believe the market is expecting closer to 25 percent and this could be seen as disappointing," UBS wrote in a note to clients. "We continue to see the strategic rationale as unclear."
Swiss Re, which was briefing investors on Wednesday, said the SoftBank investment was "currently expected not to exceed 10 percent" and the two companies were also exploring strategic cooperation.
The reinsurer reiterated it was not considering issuing new shares for the possible investment by SoftBank. The Swiss company's finance chief said SoftBank would likely buy any shares on the open market.
"There is no certainty that any minority investment or strategic partnership will be agreed, or as to any terms, timing, or form of any such investment or partnership," Swiss Re said.
Analysts have said SoftBank could be attracted by Swiss Re's research capabilities, undervalued stock, and cash generation.
SoftBank declined to comment.
Swiss Re "appears well prepared for the ongoing technological changes by actively working on platforms and ventures," Vontobel Research said in an investor note.
SoftBank plans to offer Swiss Re's insurance products directly to users of other companies it has invested in, such as Uber and WeWork, the Wall Street Journal has reported, citing people familiar with the matter.
SoftBank founder Masayoshi Son has said he wants to build a group of industry-leading companies that, powered by technological advancements in artificial intelligence and interconnected devices, will endure for 300 years.
Through its investment arm centered on the Vision Fund, the world's largest private equity fund, SoftBank has already funneled $27.5 billion into tech firms around the world. That could bring a huge number of potential insurance customers - from ride-share drivers to dog walking app users - into what Son calls his "synergy group" of companies.
($1 = 0.9584 Swiss francs) (Additional reporting by Paul Arnold in Zurich and Sam Nussey in Tokyo; Editing by Michael Shields and Mark Potter)