Mitsubishi UFJ to buy Morgan shares at book: source

NEW YORK (Reuters) - Mitsubishi UFJ Financial Group is expected to pay $31.25 per share when it acquires a 20 percent stake in U.S. investment bank Morgan Stanley, a person familiar with the situation said Monday.

At that price, Japan's largest commercial bank would be paying Morgan Stanley's reported book value per share at the end of August. Morgan stock rose 8.8 percent to $29.60 in late-morning trading on the New York Stock Exchange.

Earlier Monday Mitsubishi UFJ said it would acquire 10 percent to 20 percent of Morgan Stanley, but declined to provide more detail on terms. Mitsubishi UFJ told reporters in Japan it estimated the deal would be set at about $31 a share.

The person familiar with the deal said Morgan expects to sell the full 20 percent stake. By exceeding the 9.9 percent threshold, the deal would require more regulatory approvals.

Morgan Stanley declined to comment.

Mitsubishi UFJ's announcement Monday came as a surprise since most investors were waiting for Morgan Stanley to announce a merger with U.S. regional bank Wachovia Corp, and a follow-on investment in the firm by China Investment Corp.

The Mitsubishi UFJ talks had been in progress last week, the source said, but took on greater urgency as the Federal Reserve late Sunday approved Morgan's application to become a commercial banking company. The deal would bring Morgan Stanley, which now intends to bulk up its base of deposits, into a strategic alliance with the world's second-largest bank by deposits.

(Reporting by Joseph A. Giannone, editing by Gerald E. McCormick)