UPDATE 2-Volkswagen mulls cooperation with Suzuki - source

* VW eyes Suzuki's success in small cars

* Tiny sells big in emerging markets

(Adds detail)

By Christiaan Hetzner

FRANKFURT, June 25 (Reuters) - Volkswagen (VOWG.DE) is exploring a cooperation deal with Japanese rival Suzuki Motor (7269.T) to boost the German carmaker's expertise in ultra small cars, a source familiar with the matter said on Thursday.

"You have see it through an Asian perspective, particularly a Japanese one. There are vehicle sizes and classes that cannot be found here," the person said.

"You only see them at the Tokyo motor show but it is undoubtedly an interesting segment, just have a quick look at the developing markets like India. It's correct that there is a gap there that could be closed."

The cooperation could provide a model below the upcoming "New Small Family" of mini cars based on the Up! concept. VW currently plans to release the range of small cars starting with a VW brand car which will be built in Bratislava and due to hit markets in 2011.

Germany's manager magazin reported on Thursday Volkswagen was looking to secure a cooperation deal by taking a 10 percent stake in Suzuki.

"It's not that far along," the source said, adding "(Volkswagen) are first discussing the possibilities of a cooperation".

A spokesman for Suzuki could not comment, saying he had not heard anything on a potential tie-up, while VW declined to comment.

Ferdinand Piech, Volkswagen's chairman, signalled interest in Suzuki after praising it when asked at the Polo's media launch last month in Sardinia which other brands could be added to the group's stable.

MOBILITY SPREADING

Suzuki is benefiting in Japan from the popularity of 660cc ultra small vehicles -- a sector dominates with Toyota unit Daihatsu Motor Co (7262.T).

That helped Suzuki and Daihatsu overtake Nissan Motor Co (7201.T) to become the second and third-ranked brands in Japan after Toyota in the past financial year.