Ito-Yokado, whose supermarkets and Seven-Eleven convenience stores comprise Japan's biggest and most profitable retailing group, said that if its licence application is approved, it would eventually drop out of a joint bid led by Softbank to take over state-controlled Nippon Credit Bank (NCB).

Softbank, which has invested aggressively in a wide array of Internet-related ventures, recently filed a preliminary proposal to bid for NCB jointly with Ito-Yokado, as well as Japan's biggest leasing firm Orix Corp and its biggest casualty insurer Tokio Marine & Fire Insurance Co.

The NCB bid, which analysts see as a risky but potentially lucrative move for Softbank outside its familiar Internet turf, helped fuel a stunning rally in Softbank shares, which have risen more than 11-fold since the beginning of the year.

"Ito-Yokado is the key member (of the joint bid) given its high credit worthiness and ample funds. It it drops out, the rest of the firms would find it difficult to take over NCB," said Yasumasa Ishibashi, a banking analyst at New Japan Securities.

"It could increase foreigners' chances of winning the NCB bidding war," he added.

Other NCB bidders named in media reports are U.S. Investment bank Lehman Brothers, French bank Paribas and U.S. Investment fund Cerberus Group. The regulators want to select the winning bid by the end of the year.

Investors appeared little worried about the implications of Friday's Ito-Yokado news for Softbank, whose shares ended up 1,500 yen or two percent at 76,400.

An Ito-Yokado spokesman said the retailer held informal talks with Financial authorities about a banking licence, which would make it Japan's first retailer to move into the banking business.

He declined to comment on the likely timing of a formal application, adding that his company had not withdrawn from the joint bid for NCB.

"For the time being, we will hold on to both options, but we will make a choice at some point," he said.

He also made it clear that the retailer's real interest is largely limited to a trust banking unit of NCB, not the failed bank itself, which was put under state control last December as it struggled with massive debts and faltering credit worthiness.

Softbank declined to comment on Ito-Yokado's latest move,while spokesmen for both Orix and Tokio Marine said they remain part of the Softbank bid.

Ito-Yokado's attempt to go it alone in banking drew approval from investors, who pushed its shares up their daily limit of 1,000 yen or 11 percent to 10,120. Seven-Eleven Japan Co, Ito-Yokado's convenience store chain unit, also shot up its daily limit of 2,000 yen or 14.4 percent to 15,850.

"The Ito-Yokado group has the ability and Financial strengthand technology to move into banking on its own," said Joya Konishi, senior retail analyst at Schroders Japan.

Ito-Yokado said its group could tap a nationwide network of9,300 stores that serve nine to 10 million customers a day. Sanwa Bank, with Japan's largest retail banking network, has 1,107 outlets.

Ito-Yokado said its banking operations would be limited largely to deposit-taking and other retail banking services for its customers.