UPDATE 2-Sumitomo Trust, Chuo Mitsui in merger talks

* Banks to hold briefing at 0700 GMT

* New entity would be top trust bank with Y36.4 trln in assets

* Merger ratio yet to be determined - Nikkei (news)

* To close a quarter of branch offices - Nikkei

* Sumitomo (Munich: 860364 - news) shares flat, Chuo down 2.5 pct (Adds details, background)

TOKYO, Nov 6 (Reuters) - Sumitomo Trust and Banking Co Ltd and Chuo Mitsui Trust Holdings Inc said they are in talks to merge, which would create Japan's largest trust bank with scale to better compete in a crowded asset management industry.

Sumitomo Trust, Japan's fifth-largest bank, and sixth-ranked Chuo Mitsui said in separate statements they were in negotiations and would make an announcement upon reaching an agreement. A Sumitomo Trust spokesman said the banks would hold a news conference at 0700 GMT.

The two will first form a holding company in April 2011 and merge their businesses a year later, the Nikkei newspaper said on Friday, adding that the merger ratio will be decided later.

Together, Sumitomo Trust and Chuo Mitsui would have 36.4 trillion yen ($401 billion) in assets, surpassing the 21.5 trillion yen held by Mitsubishi UFJ Trust, a unit of top Japanese bank Mitsubishi UFJ Financial Group .

Unlike traditional lenders, trust banks also focus on custodian banking -- servicing a client's assets -- and asset management. Major global competitors include State Street Corp (NYSE: STT - news) and Bank of New York Mellon , which last year acquired JPMorgan Trust Bank in Japan.

Sumitomo Trust last month bought Citigroup (NYSE: C - news) 's Japanese asset manager Nikko Asset Management for $1.2 billion as it attempts to increase its retail business.

Japan has an estimated $15 trillion in household savings, which both domestic and overseas asset managers are keen to target. In addition to local banks, Europe's HSBC (LSE: HSBA.L - news) and Standard Chartered (LSE: STAN.L - news) have been looking to expand their presence in the market.

As part of the merger, Sumitomo Trust and Chuo Mitsui will close a quarter of their branches, or 29 of their 118 offices, the Nikkei said.

Chuo Mitsui is about 30 percent owned by the government, which injected money as part of a bailout a decade ago.

Shares of Chuo Mitsui were down 2.5 percent, while Sumitomo Trust was little changed. Tokyo's index of banking stocks was down a little more than 1 percent. (Reporting by David Dolan; Editing by Chris Gallagher)