French engineering giant Schneider Electric has held early talks with Tyco International Ltd about buying the U.S. industrial conglomerate, a person with knowledge of the matter said on Tuesday.

Schneider has tapped bankers about financing a potential takeover proposal for Tyco that could create the world's leading maker of security systems, the source said.

Schneider's interest in Tyco has also prompted buyout interest from other industrial conglomerates, although it remains unclear if any other bidder will emerge, the source said, asking not to be named because he was not authorized to speak with the media.

Shares of Tyco rose 7.4 percent to $52.33 on the New York Stock Exchange, valuing the company at about $24.8 billion, after the Daily Telegraph reported earlier on Tuesday that Schneider has sent a letter to the U.S. company's board outlining its interest in buying the business.

CNBC reported after the close of trading on Tuesday that early stage leaks about the talks had made a deal less likely, and Tyco shares eased back about 1 percent to $51.95 in after-hours trading.

You've got other people who are interested in Tyco, frankly not very many are able to look at the company as a whole but lots are interested in pieces, the source said.

The universe of logical bidders include Siemens AG , Honeywell International Inc and United Technologies Corp , analysts said.

The Tyco board has allowed the start of due diligence, according to the Telegraph report, which cited unnamed sources. However, it said Tyco is thought to be unwilling to accept an offer at less than $65 a share from Schneider.

A Tyco spokesman had no comment. Schneider could not immediately be reached outside normal business hours.

To get a deal done, Schneider might be willing to give Tyco CEO Edward Breen a seat on the board of the combined company, the Telegraph reported.

JP Morgan and Bank of America Merrill Lynch have been working with Schneider since September on the takeover deal, the Telegraph said.

The Telegraph report said Schneider's bankers have been looking at a variety of ways of financing the deal, and it cited sources as saying the most likely way a takeover would be financed would be via a part-cash, part-share offer.

Tyco's market capitalization is roughly $25 billion, including Tuesday's gains. Schneider has a market value of about $46 billion. One credit analyst said Schneider would need to issue equity since it could not borrow enough to pay for such a deal.

Schneider, which competes with Germany's Siemens and ABB of Switzerland, has made a series of small to medium-sized acquisitions over the past year, many of them focused on emerging markets like India and Russia.

Besides security services, Tyco makes fire safety systems and industrial products such as valves and controls used in water and chemical systems.

(Reporting by Soyoung Kim and Nick Zieminski, editing by Bernard Orr, Phil Berlowitz)

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