A final decision on the sale will be made by the end of the year, the source said on condition he was not identified.

Advantage Partners will pay several hundreds of millions of yen for the business, which makes digital cameras for other companies, including Olympus Corp, the Nikkei business daily reported earlier.

Panasonic declined to comment saying it had not announced the plan.

The Japanese company aims to sell 110 billion yen ($1.34 billion) of assets, including buildings and land by the end of March to boost free cashflow to 200 billion yen for the business year. The company expects an annual net loss of close to $10 billion as it writes off billions in deferred tax assets and goodwill.

Panasonic acquired rival Sanyo, a leading maker of lithium ion batteries and solar panels, in 2010. Sales of compact digital cameras are under pressure from increasingly powerful smartphones.

Panasonic's shares gained as much as 4 percent in early trading in Tokyo, compared with a 0.5 percent rise in the benchmark Nikkei 225 index. ($1 = 82.3900 Japanese yen)

(Reporting by Reiji Murai; Writing by Tim Kelly; Editing by Jeremy Laurence)

• A Permanent Economic Emergency