UPDATE 1-Germany's Software AG leads bids for Iona -report

(Adds Sun Microsystems comment)

DUBLIN, April 20 (Reuters) - Advisers for Ireland's Iona Technologies IONA.O are drawing up a short list of five bidders for the company out of 10 expressions of interest, which are led by Germany's Software AG (SOWG.DE), the Sunday Times reported.

Irish software company Iona IONA.I, which said in February it had hired Lehman Brothers to advise it on a possible merger or sale of the business, was not immediately available for comment. Software AG declined to comment.

"Software AG, whose approach prompted the auction, is still at the forefront of the bidding," the Sunday Times said.

A source familiar with the matter told Reuters that Software AG, Germany's second-biggest software maker after SAP (SAPG.DE), "had shown interest in Iona, though no serious negotiations had yet taken place."

In February, Software AG declined to comment on market talk it was bidding for Iona, but an industry source said then that Software AG was not the bidder.

The Sunday Times also said California-based Sun Microsystems(JAVA.O), Germany's SAP (SAPG.DE) and U.S. software maker Red Hat Inc (RHT.N) were believed to have run the ruler over Iona.

SAP had no immediate comment on the report while Red Hat was not immediately available for comment.

A spokeswoman for Sun Microsystems said it did not comment on speculation concerning potential acquisitions, but added that Sun's strong balance sheet offered the company a high level of liquidity for acquisitions and other strategic investments.

The Sunday Times added: "No guidance has been given on price, though originally it was thought unlikely that an offer of less than $4.50 per share would be accepted. Such an offer would value Iona at just $160 million." (Reporting by Andras Gergely in Dublin and Georgina Prodhan in Frankfurt; Editing by Quentin Bryar and Jan Paschal)