Japanese brewer Suntory Holdings Ltd said on Monday it was considering a merger with larger rival Kirin Holdings Co <2503.T>, a deal that would create one of the world's largest beverage and food firms.

The news sent shares of Kirin soaring 8.4 percent to a nine-month high, and lifted shares of other brewers amid speculation that a deal would trigger consolidation in the sector.

A merger would put Kirin and unlisted Suntory on par in revenue terms with U.S.-based Kraft Foods and Pepsico Inc , and help the two gain clout in Japan's mature market.

If a merger is realized, that would give them the market share to take leadership in pricing and help their soft drinks businesses -- a chronic weak spot in a ultra-competitive market, said JP Morgan analyst Naomi Takagi.

It's a huge positive if they can do it.

Suntory spokeswoman Naoko Tsuda said the company is considering various options, and that nothing had been decided.

When asked if a merger with Kirin was one of the options under consideration, she said, Yes.

Kirin spokesman Mitsutake Matano declined comment on the possibility of a merger, repeating a statement that while Kirin is working with Suntory on procurement, distribution and other business activities, nothing had been decided.

Kirin and Suntory are in talks to merge under a holding company, and aim to agree on the deal this year, the Nikkei business daily said, citing unidentified sources.

The merged firm would be the largest player in the Japanese beer and soft drink markets, and one of the biggest globally, with combined annual sales of 3.8 trillion yen ($41 billion), giving them more resources to seek acquisitions abroad.

Some analysts cautioned that a deal was by no means a sure thing, citing potential regulatory resistance as the firms would have command about half of Japan's beer market, and noting their very different corporate cultures.

It is not at all certain that a deal is really going to happen. The hurdles ahead are by no means small, said Mizuho Securities analyst Hiroshi Saji.

Shares of Kirin were up 8.4 percent at 1,400 yen while the Nikkei benchmark average <.N225> was 1 percent lower. Sapporo surged 8.5 percent to 548 yen and Asahi climbed 4.2 percent to 1,418 yen.

I don't think Asahi or Sapporo are going to stand idly by, said Mizho's Saji.

The Nikkei said Kirin Holdings President Kazuyasu Kato and Suntory Holdings President Nobutada Saji met at the end of last year to initiate talks and they had informed some of their executives of the merger plan by early July.

Japan's beer market has shrunk by 15 percent in terms of shipment volumes over the past decade, forcing the industry to slash costs and look overseas for growth.

Earlier this year Kirin, which held 37.5 percent of Japan's beer market in January-June, agreed to a $2.5 billion buy-out of Australian brewer Lion Nathan , the latest in a series of deals by the maker of Kirin Lager Beer.

Last year Suntory outmaneuvered both Kirin and Asahi Breweries Ltd <2502.T> with a more than 600 million euro ($836 million) deal for Danone's Frucor juice unit and said it was ready spend another $2 billion or so on acquisitions.

Suntory, almost wholly owned by its founding family, and Kirin hold a combined market share for beer products in Japan of roughly 50 percent, putting them well ahead of Asahi Breweries at about 37 percent, industry data show.

($1=92.48 Yen)

($1=.7178 Euro)

(Additional reporting by Ritsuko Shimizu; Editing by Edwina Gibbs)

Japan Nikkei 225