CORRECTED-UPDATE 4-Banco BPM, Credit Agricole swap notes on possible tie-up -source

(Corrects OCT 15 story to show Credit Agricole Italy has 73 billion euros in assets, paragraph 12)

* Agricole targets growth in its second biggest market

* Banco BPM under pressure to seek merger after Intesa-UBI deal

* Banco BPM had looked at UniCredit, keeps all options open

MILAN, Oct 15 (Reuters) - Italy’s third-largest bank Banco BPM has agreed to share confidential information with the local arm of Credit Agricole to explore a potential tie-up, a source familiar with the matter said on Thursday.

France’s second-biggest bank has been scouting for new opportunities in its main market outside its home turf as the Italian banking sector consolidates.

Banco BPM started looking for a deal after rival UBI was snapped up by Intesa Sanpaolo earlier this year in a 4 billion euro ($5 bln) cash-and-paper offer that UBI’s management failed to thwart.

The source said the non-disclosure agreement with Credit Agricole did not prevent Banco BPM from discussing other merger options.

The two banks have been in talks over the future of their Agos consumer credit partnership, but sources with knowledge of the matter told Reuters there had also been preliminary contacts over a possible merger.

Il Messaggero daily reported on Thursday they were preparing to enter formal talks ahead of a possible share swap offer.

A person close to Banco BPM said recent contacts between the two banks still centred on Agos, though Banco BPM was open to discussions with all potential M&A partners. Credit Agricole declined to comment.

Shares in Credit Agricole were 4% lower by 1433 GMT. Banco BPM was little changed after broader merger speculation lifted its stock by a fifth over the past six weeks.

However, it still trades at just 0.2% of the bank’s book value, a cheap valuation which may complicate a deal, analysts say.

Credit Agricole’s Italian business dates back to 2007 when it bought assets as part of Intesa’s merger with Sanpaolo IMI.

It also took over three small ailing Italian banks in 2017 for 130 million euros, while a year earlier its asset manager Amundi bought Pioneer Investments from UniCredit for 3.6 billion euros.

Banco BPM manages banking assets worth around 180 billion euros versus Credit Agricole Italy’s 73 billion. Broker Equita calculates a tie-up would create Italy’s second biggest bank with an 11% market share, just above UniCredit’s, and a strong position in the wealthy north.

Both Credit Agricole and BNP Paribas, which is also present in Italy, have been closely watching developments in the euro zone’s third-biggest economy as Rome looks for a buyer for bailed-out bank Monte dei Paschi (MPS).

Italy’s Treasury had hoped to combine Banco BPM with MPS to form a third large bank group next to Intesa-UBI and UniCredit.

BPM has repeatedly denied any interest in MPS. Sources have said it instead considered a deal with UniCredit, which however is now seen as the best option for MPS.

Bankers say this acquisition could be eased by the arrival at UniCredit as chairman designate of Pier Carlo Padoan, a former economy minister who oversaw the 2016-2017 rescue of MPS.

Italy’s co-ruling 5-Star Movement on Thursday vented opposition to such a prospect.

UniCredit CEO Jean Pierre Mustier has ruled out M&A, but people familiar with the matter say he faces pressure from shareholders to take action after Intesa’s move and could consider MPS if he deemed the conditions right.($1 = 0.8540 euros) ($1 = 0.8555 euros) (Additional reporting by Giulio Piovaccari and Gianluca Semeraro in Milan; Writing by Valentina Za; Editing by Alexander Smith and Kirsten Donovan)