* Talks are around 4 mln euros per branch valuation-source
* Deal could be worth over 500 mln euros
* Barclays looking at other bank outlets - source
(adds details and background)
By Steve Slater and Nigel Tutt
LONDON/MILAN, Oct 15 (Reuters) - Britain's Barclays is in talks to buy 135 Italian branches from Banca Monte dei Paschi di Siena, people familiar with the matter said, in a deal that could be worth over 500 million euros ($746 million).
The talks are on the basis of Barclays paying about 4 million euros a branch, one of the sources said on Thursday.
Barclays has previously offered 3 million euros per branch, but BMPS has been firm on wanting 5 million, Italian business daily Il Sole reported.
The bank is due to meet BMPS in Siena with consultant Morgan Stanley in the next few days, possibly on Thursday, Il Sole said.
A deal is not imminent and the UK lender is also in talks to buy branches from other banks to build up its Italian presence, a second source said.
BMPS and Barclays declined to comment.
Barclays is expanding in western Europe under Frits Seegers, who took over as head of retail and commercial banking in 2006.
The bank agreed a deal with French insurer CNP Assurances in June to help build out an insurance joint venture in Italy, Spain and Portugal, and in September bought the Portugal credit card business from Citi.
Barclays has targeted northern Italy as a key growth area. It has 256 distribution outlets in Italy, including about 150 branches, up from 49 in mid-2007.
One attraction is the high deposit to loan ratio in Italy, a local analyst said, saying this had been particularly attractive as liquidity came under strain during the financial crisis.
Italian banks on average hold as much on deposit as they lend out. The loan/deposit ratio for Italian banks is 100 percent, compared to an average of 153 percent for UK banks and 121 percent across Europe, according to analysts at Keefe, Bruyette & Woods.
FORCED SELLER
BMPS, which is the oldest bank in the world, must sell 150 of its branches by mid-December as a condition from Italy's antitrust authority for its Antonveneta acquisition. So far it has sold only 15 outlets at 5 million euros each.
Sources said in June that Italy's bank Intesa Sanpaolo was in talks to buy 50 of the BMPS branches for a total of between 125 million to 150 million euros.
Barclays is also interested in acquiring Banco Popolare's retail units Popolare Cremona, Popolare Crema and Cassa Pescara, and its merchant bank Efibanca, Il Sole said.
A spokesman for Banco Popolare said the bank has previously said Efibanca is non-strategic but has not commented on the other possible sales. He declined further comment.
A Milan-based bank analyst said BMPS has always wanted 5 million euros per branch. He said other banks might be interested, including Deutsche Bank, while valuation partly depends on the location of the branches in the country. ($1=.6710 Euro) (Additional reporting by Stefano Bernabei in Rome; Editing by Karen Foster)