The Financial Times said the government was preparing a capital increase for the state-controlled group and could sell a 15 percent stake to raise two billion euros (2.8 billion dollars).

The move would leave the French state with 75 percent of Areva, a world leader in nuclear power with manufacturing facilities in 43 countries, down from its current 90 percent.

France produces most of its electricity from nuclear power and President Nicolas Sarkozy has been active in trumpeting his country's know-how to win French companies new business abroad.

Mitsubishi Heavy Industries (MHI), Areva's Japanese partner, is set to take a stake in the French company, said the FT, citing unnamed people with knowledge of the situation.

MHI said it had not received an offer to buy a stake but told AFP it was prepared to study such a proposition.

French energy groups like EDF, Total and GDF Suez have previously been touted as possible investors in Areva.

The French government is also in talks with sovereign wealth funds such as Mubadala of Abu Dhabi over their participation in a capital increase, which will be launched later this year, the FT said.

Areva needs between eight and 10 billion euros by 2012 to fund its investment programme, notably to develop its third-generation EPR nuclear reactor.

It also needs an estimated two billion euros to buy out Siemens' stake in Areva NP, its reactor subsidiary.

Areva's supervisory board is due to meet next Tuesday after which the FT says it is likely to announce plans for a capital increase.

The group will also announce the sale of its T&D transport and distribution subsidiary, which supplies equipment to power grid operators, to fund the development of the company, the FT said.

Jean-Cyril Spinetta, the newly appointed chairman, has concluded that the business is not a core interest, in line with the government's view that Areva should focus on nuclear power, it added.

A source close to Areva told AFP that "we are heading towards a capital increase and the probable sale of T&D."

Areva, contacted by AFP, declined to comment on the FT report.

An economy ministry spokesman also declined to confirm the report, saying only that the state would take the necessary decisions at the right moment to ensure the development of Areva.

But a union official told AFP the government had touched on the subject of a possible sell-off of T&D in recent talks with labour representatives.

In meetings over the past two weeks, including with Prime Minister Francois Fillon, the government told them "that if T&D is sold, it will be in a single chunk, not a partial sale," said CFDT union secretary Maureen Kearney.

Axa Private Equity investment fund is believed to be interested, but the favourite is seen as the French engineering giant Alstom, the firm that builds TGV high-speed trains.

Several unions have called for a demonstration on Tuesday outside the labour ministry to protest the reported plan.

Patrice Lambert de Diesbach, an analyst with CM-CIC Securities, said a capital increase combined with the sale of T&D was "excellent news" for Areva, and would "finally allow it to manage its growth with more freedom."

The report comes amid growing interest in nuclear power around the world, sparked by fears of climate change, worries about the reliability of supplies from the Middle East and Russia and record high oil prices in 2008.

More than 40 nuclear reactors are currently being built in 11 countries, notably in Russia.

The International Atomic Energy Agency expects that at least 70 nuclear power stations will be built around the world in the next 15 years, doubling the global supply of nuclear energy.

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