* Japan No.5 bank to buy Citi asset firm for $1.1 bln -paper
* Sumitomo Trust may sell stake in Nikko Asset to SMFG -paper
* Sumitomo Trust will also consider IPO of unit -paper
TOKYO, July 29 Sumitomo Trust and Banking Co 8403.T has agreed to buy Citigroup's (C.N) Japanese asset manager, Nikko Asset Management, for about 100 billion yen ($1.1 billion) the Nikkei newspaper said on Wednesday.
Sumitomo Trust, Japan's fifth-largest bank, is likely to make the acquisition by October, the paper said, without identifying its sources.
Acquiring Nikko Asset's roughly 9 trillion yen in assets under management would make Sumitomo Trust Japan's top asset manager with a total of about 35 trillion yen, the Nikkei said.
Nikko Asset is Japan's third-largest mutual fund manager, and is well known to both institutional and retail investors.
Spokesmen for both Nikko Asset and Sumitomo Trust declined to comment, as did a Hong Kong-based spokesman for Citigroup.
Sumitomo Trust may consider selling a stake in Nikko Asset to Sumitomo Mitsui Financial Group (8316.T), Japan's third-largest bank, the paper said.
Sumitomo Mitsui recently acquired Citigroup's Japanese retail brokerage, Nikko Cordial. [ID:nBNG446757]
Sumitomo Trust will also consider taking Nikko Asset public, the paper said.
Citigroup has been selling off its assets in the world's second-largest economy after taking $45 billion in U.S. government money following the credit crisis. (Reporting by David Dolan; Editing by Edwina Gibbs)