UPDATE 1-Daimler in talks to buy stake in Porsche -report

* Daimler, Porsche CEOs discussed options in May -report

* Daimler calls report "pure speculation"

* Porsche says has no knowledge of talks with Daimler
(Adds comment from Volkswagen, other background and details)

FRANKFURT, June 19 (Reuters) - German car maker Daimler
(DAIGn.DE) is in advanced talks to buy a stake in sports car
maker Porsche SE (PSHG_p.DE), German magazine "manager magazin"
reported on Friday on its website, citing financial sources.

Daimler Chief Executive Dieter Zetsche and Porsche CEO
Wendelin Wiedeking had already discussed potential options at
the end of May, manager-magazin.de said, citing financial
sources.

An industry source told Reuters that the report should be
taken seriously.

Separately, another source close to the situation said it
was not a surprise if different players in the industry were
talking to each other, but "we are nowhere near close to a
deal."

A spokesman for Daimler called the report "pure
speculation" and a Porsche spokesman said he had no knowledge
of talks with Daimler. A Volkswagen spokesman did not want to
comment on the report.

Daimler is wary of big transformational deals after a
takeover of Chrysler failed to yield the expected profits.

Daimler recently shored up its capital base by selling a
9.1 percent stake to Abu Dhabi's state-controlled International
Petroleum Investment Company (IPIC) for almost 2 billion euros
($2.78 billion). [ID:nLN133911]

The online report said Daimler could acquire a stake in
Porsche via a capital increase or it could buy derivative
instruments which can be converted into Volkswagen (VOWG.DE)
shares from Porsche, potentially handing Daimler a stake in
Europe's largest carmaker.

Big gains on derivative bets linked to Volkswagen shares
offset a decline in nine-month earnings at Porsche SE's core
sports car business, results showed on Friday. [ID:nLJ236264]

Porsche owns 51 percent of VW's ordinary shares.

Porsche originally sought to build its voting stake up to
75 percent in order to take full control of VW via a so-called
domination agreement, but had to give up on its plans early
last month.

In the course of Porsche's share purchases, it racked up a
mountain of debt that it could not refinance as planned using
VW's own cash pile and is now looking for a way to bail itself
out by combining with financially solid Volkswagen.

It has asked for German state aid while it is in talks to
sell a stake to the Qatar Investment Authority (QIA).
(Reporting by Eva Kuehnen, Christiaan Hetzner, Edward Taylor,
Jan Schwartz in Hamburg and Hendrik Sackmann in Stuttgart,
editing by Matthew Lewis)