Olympus may hold a news conference as early as this week on a possible tie-up with Sony, which would boost its existing 0.03 percent holding in the endoscope and camera maker to several percent, the magazine said.

Diamond also quoted an unnamed Sony executive as saying that the consumer electronics maker's chief executive Howard Stringer had already given the green light for a deal.

Japan's electronic firms are keen on Olympus high-margin endoscope business, although branching out to healthcare would be a new tack for Sony, which supplies image sensors to Olympus.

"Sony has been trying to integrate software, content and hardware to create an entertainment network. But Apple has a stranglehold on this market, so however hard it tries, it's going to be a runner-up at best," said Mizuho Investors Securities analyst Nobuo Kurahashi.

"On the other hand, healthcare is a growth market...if it is not too damaging to Sony's balance sheet, it is certainly interesting," he said.

Other potential equity partners include Fujifilm Holdings Corp which has said that it is willing to support Olympus if asked, while banking sources have said that Panasonic Corp is interested.

Media reports have also mentioned Canon Inc and Terumo Corp.

Asked about the Diamond report, Olympus spokeswoman Saori Yamazaki said no news conference had been scheduled and no decisions had been made on the matter.

"We are currently considering various management reform options but no specific decisions have been made on any issues," she said.

Sony spokesman Shigenori Yoshida said the company had no comment.

Olympus' shares surged by 8.2 percent to 1,297 yen, helped also by the Tokyo Stock Exchange's decision on Friday to keep the stock listed.

The stock is still down nearly 50 percent since the company fired its British chief executive Michael Woodford on October 14, triggering a series of stunning revelations in a $1.7 billion accounting fraud.

Shares in Sony also rose about 4 percent to 1,422 yen, although Mizuho Investors' Kurahashi said he did not believe they had been boosted by the report.

Diamond quoted an unnamed Sony executive as touting the potential strength of combining Olympus' 70 percent share of the global market for diagnostic endoscopes with Sony's advanced technology in image sensors.

But it also cited an Olympus executive as questioning whether a capital infusion from another company was necessary given strong cash flow from the endoscope business.

Olympus President Shuichi Takayama has emphasized that the company needs to bolster its equity ratio after it was depleted by the scandal.

Negotiations over an equity deal have nevertheless been hobbled by a leadership vacuum at Olympus, where the scandal-tainted management has said it will not resign until an extraordinary shareholders' meeting in the latter half of April.

Takayama has also said that a decision on any major moves such as an equity tie-up would have to wait until the installation of new management.

Separately, a group of shareholders are preparing a lawsuit against Olympus seeking more than 200 million yen ($2.6 million)in damages over the slide in its share price, a source familiar with the matter said on Monday.

($1 = 77.1200 Japanese yen)

(Additional reporting by Nobuhiro Kubo, Yoko Kubota and Tim Kelly; Editing by Edwina Gibbs)

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