TOKYO - MIZUHO Financial Group Inc, Japan's second-biggest bank, is in talks to invest more than US$925 million (S$1.3 billion) in Merrill Lynch & Co Inc, sources said on Tuesday, amid speculation the US bank is looking to further boost its capital.

Mizuho's corporate banking unit, Mizuho Corporate Bank, is negotiating a purchase of more than 100 billion yen (US$925 million) worth of Merrill's preferred shares, according to two sources with direct knowledge of the talks.

A spokeswoman for Mizuho, Masako Shiono, said she was unable to comment. A spokesman for Merrill Lynch in Tokyo, Tsukasa Noda, also declined to comment.

The deal would mark a turnaround for Japanese lenders, which were courting help from overseas rivals just a few years ago.

'Oh, how the times have changed. It's a mere five years since Merrill was investing in Mizuho,' said David Threadgold, a banking analyst at Fox-Pitt, Kelton in Tokyo.

'The people with money are the people who haven't been dragged down themselves by the subprime. And those tend to be sovereign funds and Asian financial institutions.'

In December, Merrill secured as much as US$7.5 billion by selling a stake in itself to Singapore's government and an asset manager.

The Financial Times said on Monday that Merrill was seeking about US$4 billion in a second capital raising, and the Kuwait Investment Authority was expected to be a significant investor.

That deal could be announced as soon as midweek, the paper said.

A New York Times report on Friday said Merrill was expected to report US$15 billion in losses from bad mortgage investments - almost twice its original estimate - when it releases its results on Thursday. -- REUTERS