Barclays may get Japanese investment

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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 in the U.S. subprime market and resulting credit crisis.

Shares of Sumitomo Mitsui were little changed on the news, and some market participants said the investment was too small to be 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 Mangement in Tokyo.

"If they are going to do this properly, they will need to increase the size of their investment," Akino said.

After a decade of faltering under bad debt, Japanese banks have cleaned up their balance sheets and rebuilt their businesses. Now faced with a shrinking market at home, Tokyo's big banks are once again looking for opportunities abroad.

Having avoided the worst of the subprime crisis, Asian lenders are in a strong position to step in with funding for their overstretched Western rivals, analysts have said.

One of Asia's biggest subprime casualties, Japan's Mizuho Financial Group, earlier this year injected $1.2 billion into Merrill Lynch.

Another stricken U.S. bank, Lehman Brothers, almost struck a deal with Korean financial institutions as part of its $6 billion in fundraising, the Financial Times reported last week.

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