UPDATE 1-Vulture fund Harbour eyes Candover -paper

(Adds Candover declining to comment)

LONDON, April 12 (Reuters) - London-based vulture fund Harbour Capital is mulling a bid for beleaguered private equity firm Candover, according to a Sunday newspaper report.

The Observer said it understands that Harbour, which specialises in bidding for distressed assets, is being advised by former Merrill Lynch banker Mark Devonshire.

Candover has considered going into run-off -- where a private equity firm ceases investing and runs its portfolio companies until they can be sold -- but only as a last resort, a source close to the situation told Reuters last month.

Like much of the private equity industry, Candover has seen the value of its portfolio companies drop because of excessive debts and weakening sales.

Candover Investments Plc (CDI.L: Quote, Profile, Research), the listed parent of Candover, said last month it would stop investing in Candover's 2008 fund and instead concentrate on realising value from its investments in its 2001 and 2005 funds.

A spokesman for Candover declined to comment on the Observer report. (Reporting by Victoria Bryan; editing by Mike Nesbit)