UPDATE 2-Japan's FamilyMart in talks to buy am/pm - source

* FamilyMart, No. 3 convenience store, may buy am/pm-source

* Deal would follow scrapped takeover attempt by Lawson

* FamilyMart to team with Itochu, deal about Y10 bln - Nikkei

* Advantage Partners has been looking to sell am/pm (Recasts with source confirmation of talks, background)

TOKYO, Nov 12 (Reuters) - FamilyMart Co (8028.T), Japan's third-largest convenience store operator, is in talks to buy smaller rival am/pm Japan Co, a source familiar with the matter said on Thursday.

The Nikkei business daily reported earlier on Thursday that FamilyMart Co (8028.T) and its top shareholder Itochu Corp (8001.T) would likely buy am/pm Japan Co from its parent Rex Holdings Co for 10 billion yen ($110 million).

Rex Holdings is owned 92 percent by Japanese private equity firm Advantage Partners, which has been seeking a buyer for am/pm. [ID:nT20934]

The Nikkei said am/pm stores would take the FamilyMart name after the takeover.

Ranked seventh in the convenience store sector, am/pm owns roughly 1,100 stores, with some 70 percent located in the growing Tokyo market, the Nikkei said.

Earlier this year, Lawson Inc (2651.T) scrapped a plan to buy am/pm Japan after a dispute over brand names, ending a bid to consolidate the overcrowded sector. [ID:nT232151] (Reporting by Taiga Uranaka in Tokyo; Arundhati Ramanathan in Bangalore; Editing by Deepak Kannan and Chris Gallagher)