Carifirenze heads for takeover by Intesa Sanpaolo

(Adds details, background)

FLORENCE, Italy, April 20 (Reuters) - Italian regional lender CariFirenze CFI.MI looks ready for a takeover by Italy's biggest retail bank, Intesa Sanpaolo (ISP.MI), after sources at its key shareholder said talks had been approved.

"The foundation has given the mandate for a merger with Intesa Sanpaolo," one of the sources said.

The decision by the foundation, which holds 41 percent of the 4.76 billion euro ($6.48 billion) bank, heralds the latest consolidation among Italian banks.

Intesa Sanpaolo was itself created at the beginning of this year from Banca Intesa and Sanpaolo IMI.

Intesa Sanpaolo, worth about 75 billion euros, said earlier this month it had made a formal approach to the smaller lender, in which it already has an 18.6 percent stake and an option to buy a further 10.78 percent stake.

Italy's banking sector is still lodged firmly in local, often cooperative, banks and would provide lucrative returns for any buyers because of high interest rates on lending.

But targets are shrinking as banks, encouraged by Central Bank Governor Mario Draghi, get together to compete better in the face of foreign entrants.

Italy's biggest bank by value UniCredit (CRDI.MI) is considering an offer for France's Societe Generale (SOGN.PA), financial sources told Reuters on Friday.

Both SocGen and UniCredit declined to comment.

Italy's third largest bank, Capitalia CPTA.MI, long seen as the most attractive remaining unattached major bank, dismissed speculation on Thursday of an impending merger when its chairman ruled out foreign partners.

Cesare Geronzi also said any tie-up with Italian investment bank Mediobanca (MDBI.MI) had never been under discussion and that there were no talks with Unicredit.

Shares in CariFirenze were up 0.75 percent at 5.79 euros at 1424 GMT while Intesa Sanpaolo stock gained 1.62 percent to 5.97 euros.

((Editing by Sue Thomas; via Milan newsroom +39 02 66129 507, fax +39 02 801 149, milan.newsroom@reuters.com))

($1=.7348 Euro)

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