* Two rival approaches made for Misys

* Consolidation driven by lack of major software upgrades

By Paul Sandle and Victoria Howley

LONDON, March 6 (Reuters) - Switzerland's Temenos , confronted by two rival approaches for Britain's Misys , could win more time to prepare its offer for its banking software peer, a source said on Tuesday.

Under British takeover rules, Temenos must make a firm offer by 1700 GMT on Tuesday unless the two parties ask for an extension to their merger talks.

A source close to the situation said Temenos and Misys were working towards a deal but there was almost certainly expected to be an extension.

The source declined to say if any cash sweeteners or any major changes to the deal were being discussed.

A separate banking source said that Temenos could possibly raise a high-yield bond to add some cash to its offer. The European high-yield market has been building steadily this year, offering a source of extra finance for mergers and acquisitions.

Misys and Temenos have been hit by a customer drop-off in spending on major upgrades, triggering the move towards joining forces to cut costs and boost revenue.

Their deal outlined on Feb. 7 would see Misys take 53.9 percent of the equity while Temenos's chief executive and chairman would lead the management team.

Misys shares fell 8.5 percent to a low of 292 pence the day after the merger was announced.

Misys stock is currently trading at 338 pence, giving the company a market capitalisation of 1.13 billion pounds, compared with the Temenos offer, which would value Misys at 918 million pound.

With the emergence of two more potential offers since then from private equity groups Vista and CVC, Britain's Takeover Panel is likely to give Temenos more time to decide if it wants to make a binding bid, which would trigger a 90-day offer period.

"Temenos is motivated, but the situation has changed and they need to put something more on the table," the banking source said.

Buyout group ValueAct, Misys's biggest shareholder with a 21.5 percent stake, had initially supported Temenos's merger plan with Misys but switched on Monday to teaming up with private equity group CVC to explore a cash bid.

Private equity group Vista has said it is also looking at an offer.

If another suitor makes a binding bid while Temenos is in an offer period, the takeover clock is reset and a successive 90-day period begins starting from the date of the second bid.

If any of the parties decide not to bid, they are unable to make another offer for Misys for six months.

Analyst George O'Connor at Panmure Gordon said ValueAct and CVC could be combining to put pressure on Vista.

"ValueAct is the largest shareholder, and could be looking to put the frighteners on Vista Equity, which could have walked away with a fairly cheap deal," he said.

He questioned why ValueAct would be keen to buy now, given that it had supported Chief Executive Mike Lawrie in turning around Misys, and he had announced his departure at the same time as the merger was revealed.

"For ValueAct it may be 'how do we get our money out?', and they've come now because the Vista mooted price is not where people think it is but somewhere lower," he said.

Vista Equity Partners said on Feb. 20 it was considering a bid. It could combine Misys' capital markets software with the trade and risk management business of Thomson Reuters it bought last year.

Reports said Vista was considering an offer of around 360 pence a share, which would value Misys' equity at about 1.2 billion pounds.

That number has not been confirmed, however, and some analysts and market sources have questioned why Vista would pay such a premium in competition with an all-cash deal.

Misys has formed an independent committee to consider the proposals.

Deutsche Bank is advising CVC on the potential offer, while Vista is being advised by Goldman Sachs.

Barclays Capital and JP Morgan Cazenove are working for Misys, while Lazard and Morgan Stanley are on the Temenos side.

• A Permanent Economic Emergency