(Removes incorrect reference to Deutsche Boerse, Singapore Exchange owning partial stake in NSE)
* Launch sought by March 2014 in NSE's third foray abroad
* NSE's Japan move signals growing foreign interest in India
MUMBAI, Jan 10 (Reuters) - India's National Stock Exchange and Japan Exchange Group will seek to launch yen-denominated futures based on the Nifty index of Indian stocks, the bourse operators said on Thursday.
They plan to launch the new contracts on the Osaka Securities Exchange by next year.
The exchanges signed a letter of intent to prepare for the launch of S&P CNX Nifty index futures by March 2014, when the OSE is expected to complete its derivatives markets integration with the Tokyo Stock Exchange, they said in a statement.
This would mark the Indian exchange's third global venture, as it seeks to take advantage of rising foreign interest in Indian equities to overtake older rival BSE Ltd, whose narrower stock index competes against the NSE.
NSE already offers Nifty futures trading at the Chicago Mercantile Exchange, part of CME Group Inc, and the far more popular futures and options trading at the Singapore Exchange (SGX) listed on the Singapore Exchange Ltd.
"Yen-denominated S&P CNX Nifty futures contracts will help investors in Japan to effectively diversify their portfolios in their own currency," said Ravi Narain, CEO of NSE, according to the statement.
Volumes for U.S. dollar-denominated Nifty futures and options have surged at the Singapore Exchange in recent years as foreign investors look to avoid higher taxes in India, including most recently a proposal to crack down on investments via tax havens such as Mauritius.
SGX had 339,605 outstanding Nifty futures index contracts as of Wednesday, slightly above the 334,900 contracts in India, according to data from the Singapore Exchange and NSE.
Foreign investments into domestic stocks reached a net $24.55 billion in Indian equities last year, as valuations tumbled after a rough 2011 and markets welcomed fiscal and economic reforms.
Those flows helped send the NSE's main Nifty stock index up 27.7 percent last year.
"Going by the trend of SGX Nifty, I do believe quite a good amount of participation would come in this instrument too," said Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd in Mumbai, said of the new contract.
But he added: "Huge positions have already shifted to SGX which is not good for Indian markets."
NSE already dominates derivatives trading in India.
The exchange handled 106.2 million contracts in domestic stock index futures in January-November last year versus 8.9 million contracts on the BSE, according to data from the World Federation of Exchanges.
A third exchange, MCX-SX, is expected to launch equities trading later this month while BSE is looking to regain its competitiveness by working on an initial public offering.
NSE is also looking to list some time this year, although it has yet to appoint underwriters. (Reporting by Rafael Nam and Abhishek Vishnoi; Editing by Ruth Pitchford)