Japan's Asahi Breweries said it was not in talks to buy soft-drinks maker Orangina, denying a newspaper report it was competing with domestic rival Suntory Holdings in a $3.8 billion auction.

Private equity firms Blackstone and Lion Capital, which acquired Orangina in 2006, are considering an approach from Asahi after an exclusive negotiation period with Suntory expired in August, the Financial Times reported.

Suntory is still favored to buy Orangina, and a deal could be announced on Friday, the paper said.

We are not in talks. We have not been in such talks. We are not even considering such a move. There is no truth in this report, said Asahi spokesman Jin Yoshioka.

Suntory, in talks itself to be taken over by bigger rival Kirin Holdings, said on Thursday that it was in talks to buy Orangina, which is best known for its orange-juice based soft drink sold in a distinctive bulb-shaped bottle.

Japanese beverage firms have made a string of acquisitions over the past few years, aiming to diversify their product line-ups and grow outside their sluggish domestic market.

They have bid against each other on a number of deals. For example, Asahi lost a bid to acquire Groupe Danone's Frucor juice unit, which Suntory bought for $770 million late last year.

Asahi, the maker of Super Dry beer, is under pressure to build scale and diversify outside of Japan after Kirin and Suntory began merger talks to create a beverage giant that would control half of the country's beer market.

Shares of Kirin fell 1.4 percent and Asahi lost 0.8 percent in morning trade, both underperforming a 0.4 percent decline in the benchmark Nikkei .N225.

A Suntory spokeswoman reiterated that it was in talks to buy Orangina but nothing had been decided.

The FT said Merrill Lynch was advising Suntory.

($1=91.76 Yen)

(Reporting by Taiga Uranaka; Editing by Dhara Ranasinghe)

Japan