UPDATE 2-Ford to sell most of its Mazda stake -Nikkei

* Ford share sale would end role as largest shareholder

* Ford does not confirm "speculation" of Mazda plans

* Ford bought 25 pct of Mazda in 1979

* Ford stake to 33 pct in '96, took management control (Adds Ford statement, adds history of Ford/Mazda relationship, adds DETROIT to dateline)

By Bernie Woodall

DETROIT, Oct 15 (Reuters) - Ford Motor Co (F.N) will sell almost all of its remaining stake in Mazda Motor Corp (7261.T) as it distances itself from the Japanese automaker it once controlled, the Nikkei newspaper reported on Friday.

Ford would cut its Mazda stake to 3 percent or less from 11 percent, the Japanese business daily said in its Saturday edition.

Ford denied the "speculation."

"Ford's ownership stake in Mazda remains unchanged," Ford said in a statement. "Ford continues to have a close strategic relationship with Mazda and we cooperate in areas of mutual benefit. We have no further comment on the speculation."

The 11 percent stake makes Ford the largest shareholder of Mazda. It would lose that position if a sell-down occurs.

Some of Ford's share in Mazda, the newspaper said, would be sold to Sumitomo group firms and other companies.

At the end of business in Japan on Friday, Ford held 195 million Mazda shares at a value of 42 billion yen ($516 million).

The newspaper reported that Mazda has asked some of its parts suppliers as well as its primary lender Sumitomo Mitsui Banking Corp and Sumitomo Corp (8053.T) to buy the Ford shares.

A formal decision on the sale is to come next month, and will be structured so that the allocation for each buyer will be near 1 percent of outstanding shares, the report said.

Sumitomo Mitsui Banking is likely to replace Ford as the largest shareholder in Mazda, because Sumitomo Mitsui Financial Group Inc (8316.T) already has a 2.9 percent interest in the Japanese automaker.

FORD-MAZDA HISTORY

Ford once saw Mazda as a way to help it develop small cars.

Some of Ford's current top executives moved through the leadership of Mazda including Ford President of the Americas Mark Fields and Ford CFO Lewis Booth.

In January this year, Mazda split with Ford in a joint venture in China.

In March, Mazda turned to Toyota Motor Corp (7203.T) for help in developing its first hybrid sedan.

Ford sold its controlling stake in Mazda two years ago to free up cash, but at 11 percent remains Mazda's largest shareholder. The Ford stake was reduced to 13 percent from one-third ownership in late 2008, and later to 11 percent when Mazda issued more shares to raise cash for investing in hybrid and other technologies.

The sell-down of its controlling stake in Mazda was one in a series of divestments Ford made to raise cash and to narrow its focus after wide-ranging acquisitions of luxury brands that ultimately failed to generate profits.

Ford sold its Swedish brand Volvo to China's Geely in August. The Volvo sale, coupled with its plans to close its Mercury brand, leave the U.S. automaker with its mass-market Ford and luxury Lincoln brands.

Aston Martin, Jaguar and Land Rover brands had been sold previously to narrow the company's focus to the Ford brand.

Last month, Ford's global manufacturing and affairs chief, John Fleming, said the tie-up with Mazda produces two to three shared manufacturing opportunities a year.

The two automakers are partners in a $350 million investment in a Thailand plant to build the next generation of compact pickup trucks. Production is to start in mid-2011.

Three months ago, Ford and Mazda opened a $500 million plant in Thailand to build Ford Fiesta and Mazda2 passenger cars. ($1 = 81.46 Yen) (Reporting by Bernie Woodall and David Bailey in Detroit, additional reporting by NR Sethuraman in Bangalore, editing by Matthew Lewis)