UPDATE 1-VW board set to approve Porsche contracts - sources

* VW board to sign off on Thursday - sources

* Porsche owners due to sign on Friday - sources

* Porsche shares rise 5 pct, VW prefs up 3.6 pct

(Adds background, share prices)

HAMBURG, Germany, Nov 16 (Reuters) - The supervisory board of Volkswagen VOWG.DE is set to approve on Thursday contracts drafted for a merger with indebted parent Porsche SE PSHG_p.DE and the partial acquisition of Porsche's sports car business, sources close to the matter told Reuters.

Three people with direct knowledge of the talks said on Monday that the VW board would sign off on the documents, said to consist of several thousand pages.

On Friday, Porsche’s two controlling families would then sign the contracts.

Volkswagen declined to comment, while a spokesman for Porsche only said that its supervisory board was holding an extraordinary meeting on Friday.

Weakened by mounting debt just as global car markets plunged, Porsche this year dropped plans to acquire Volkswagen and agreed to a reverse takeover. The first step calls for VW to buy a minority stake in the Porsche AG sports car business.

A full merger is supposed to be in place by 2011, making the families that own Porsche the biggest shareholders in a combined group, ahead of VW’s home state of Lower Saxony and Qatar’s investment arm.

Porsche's non-voting shares rose 5 percent by 1609 GMT to 54.40 euros while VW preference shares gained 3.6 percent to 62.44 euros. The DJ Stoxx European car sector index .SXAP rose 3.8 percent.

Reporting by Jan Schwartz, Writing by Christiaan Hetzner