* Sainsbury, QIA, Sainsbury family decline to comment
* Traders cite talk of bid at 420p per share
* Sky says no bid from QIA, but may be another approach
* Shares close up 10 percent after rising 20 percent earlier
(Adds industry sources, updates shares)
By Mark Potter and Amran Abocar
LONDON/DUBAI, Oct 15 (Reuters) - J Sainsbury Plc shares leapt as much as 20 percent on Thursday on talk Qatar's sovereign wealth fund was planning a renewed offer for the British grocer after a previous bid attempt failed in 2007.
Traders reported talk of an offer from the Qatari Investment Authority (QIA) at 420 pence a share, which would value Sainsbury at about 7.7 billion pounds ($12.5 billion), well below the 2007 proposal of 600 pence a share.
Sky News said on its Web site, without naming sources, that there was no formal bid approach from the QIA, although it also said it was possible an approach may have come from somewhere else, without elaborating.
However, industry sources noted if Sainsbury had received a proposal, it would have been required by takeover rules to issue a statement.
Sainsbury shares, which have risen sharply on rumours of a bid from the QIA in the past, closed up 10.1 percent at 342.5 pence, with traded volume over nine times the 90-day average.
The stock earlier hit a 13-month high of 373 pence and was briefly suspended by the London Stock Exchange during a burst of frenzied trading,
"No comments on speculation," said John Elkhair, advisor to the CEO at Qatar Investment Authority (QIA), in a text message.
Sainsbury also declined to comment, as did a spokesman for the Sainsbury family, which own around 15 percent and thwarted the previous Qatari bid proposal.
ACTIVE INVESTOR
The QIA owns around 26 percent of Sainsbury following the earlier failed bid attempt.
Some analysts were sceptical of another bid materialising, noting the QIA did not participate in a share placing by Sainsbury in June in which its stake was slightly diluted.
"I know a lot's changed since then (2007) but if the family wouldn't sell at 6 pounds (a share) it's difficult to see why they'd sell at 420 (pence)," said one, who declined to be named.
Some also questioned whether debt markets had improved enough for the QIA to secure the necessary financing, the issue which holed its previous attempt.
"Data points to a short squeeze," said S&P Equity Research analyst James Munro, who noted that the amount of Sainsbury stock out on loan had declined from around 7.8 percent to 4.4 percent as of early afternoon.
He also thought a bid at 420 pence a share would be too low and a level closer to 500 pence would be more appropriate.
The QIA has been active in recent months, although it has tended to buy stakes in companies rather than take them over.
It has bought a stake in German automaker Porsche, while its investment arm, Qatar Holding, earlier this month became the biggest shareholder in Songbird Estates, which owns much of London's Canary Wharf business hub.
The QIA's property arm Qatari Diar has also raised a $1.1 billion syndicated Islamic facility which it said would fund European transactions.
Some traders reported talk that former Barclays Plc banker Roger Jenkins was broking a deal.
A spokesman for Jenkins' corporate advisory finance firm declined to comment. Jenkins left Barclays in August to set up the company, which has a specific focus on the Middle East.
The QIA's stake was built up by a Qatari fund at around 575 pence and later transferred to the QIA. (Additional reporting by Simon Falush, Joanne Frearson, Atul Prakash, Steve Slater, Quentin Webb, Victoria Howley and Alex Smith; Editing by David Cowell and David Holmes) ($1=.6157 Pound)