Japan mulling sovereign wealth fund -The Times

TOKYO, Jan 26 (Reuters) - Japan is in talks to create its first sovereign wealth fund in an attempt to put to work its massive stockpile of foreign reserves -- the world's second largest, British newspaper The Times reported on Saturday.

The newspaper cited Japan's Financial Services Minister Yoshimi Watanabe as saying that a high-level team of advisers was designing the operations of the fund, and that representatives had visited similar funds in the region.

The Japanese fund would likely concentrate its initial investments in domestic stocks, The Times said, adding that it could be used to shore up the country's struggling stock market, which hit a 2-1/2-year low this week before staging a recovery.

Japan's reserves ballooned to a record high $973 billion at the end of last month. Much of it is believed to comprise government bonds, and the country has been reluctant to diversify its holdings, resisting riskier investments like stocks that could offer higher returns.

The Times cited sources as saying that while the size of the fund had not be decided, if just 5 percent of the reserves were invested more actively, the resulting fund would control about $50 billion.

Sovereign wealth funds are becoming a force to be reckoned with in global investment and financial markets, as countries begin to take on more risks with their reserves.

China last year formed China Investment Corp, a $200 billion sovereign wealth fund, which has bought stakes in U.S. private equity firm Blackstone Group (BX.N: Quote, Profile, Research) and Wall Street's Morgan Stanley (MS.N: Quote, Profile, Research).

Middle Eastern and Asian funds in past months have been taking stakes in a handful of banking giants which have been hit by credit concerns, including UBS (UBSN.VX: Quote, Profile, Research), Citigroup Inc (C.N: Quote, Profile, Research) and Merrill Lynch & Co Inc MER.N.

A group of law makers from Japan's ruling party urged the government this week to take a slew of measures -- including considering the creation of a sovereign wealth fund -- to help the ailing stock market, which has dropped 30 percent in the past six months.

But market participants and economists doubt whether the proposals will be implemented, and Prime Minister Yasuo Fukuda has said that there is no need for the government to take immediate action on the frantic equities sell-off. (Reporting by Naomi Tajitsu; editing by Tony Austin)