UPDATE 1-Italy's Damianis to stay in Pomellato after sale to PPR -source
* PPR set to buy control of Pomellato this month -source
* Damiani family intends to keep a minority stake -source
* Prada, Renzo Rosso among unsuccessful bidders -source (Adds second source saying Damianis have made no bid for Pomellato)
By Massimo Gaia and Astrid Wendlandt
MILAN/PARIS, March 11 (Reuters) - Italy's Damiani family is likely to keep a minority stake in jeweller Pomellato following its sale to French group PPR, which could come as soon as this week, a source close to the matter said.
PPR emerged as a front-runner for Milan-based Pomellato after bids from suitors like Prada and Diesel founder Renzo Rosso were rebuffed, the source said.
"The intention of the Damiani family is to remain as a minority shareholder," the source, who has direct knowledge of the talks, told Reuters on Monday.
The Damiani family, owner of the listed jewellery business that bears its name, owns 18 percent of Pomellato, whose colourful wares are promoted by actress Tilda Swinton.
A second source familiar with the matter said the Damianis had not made any bid for Pomellato as previously reported, since the family was not in a position to do so.
The family "had tried to sell its 18 percent for a year, gave a mandate to (investment bank) Mediobanca and was not able to do so. The only serious offer for that stake came from Pomellato itself," the source said.
The acquisition of Pomellato would allow PPR, the French luxury and sports brand group that owns jeweller Boucheron, to expand in the growing jewellery segment.
The sale to PPR is expected to be closed by the end of March and possibly this week, the source said.
A banking source told Reuters on Thursday that Pomellato could be valued at about 350 million euros ($454 million), or approximately 15 times the company's earnings before interest, tax, depreciation and amortisation.
Pomellato declined to comment on talks with PPR, saying only that the company is considering strategic options for its future. PPR, which has been in talks with Pomellato for more than a year, also declined to comment.
"This multiple highlights a significant premium versus the average valuation of currently listed companies (mostly around 10 times), but not when compared to fast-growing ones such as Ferragamo and Prada," Raymond James analysts said in a note.
"We believe a premium would be deserved as it reflects Pomellato's potential both in sales and margin improvement," they said.
Founded in 1967 by Pino Rabolini, Pomellato gained popularity with the launch of its DoDo animal-shaped pendants in 1995.
Rabolini and Chief Executive Andrea Morante, who control 79 percent of the company through the holding Ra.Mo, aim to expand the group in the United States and Asia to reduce its exposure to recession-hit Europe.
The deal, if completed, would mark the second time a major Italian jeweller has fallen into the hands of a French group after LVMH bought Bulgari two years ago for 3.7 billion euros.
The Italian jewellery sector is made up of thousands of small, family-owned firms, but few are as big as Pomellato, which generated EBITDA of 19.8 million euros on sales of 146 million euros in 2012.
Bernstein Research in a report this month said it expects hard luxury - watches and jewellery - to be among the fastest growing luxury categories over the next five years.