* Veolia would list enlarged transport arm on stock exchange
* Les Echos reports Keolis also interested in Transdev
* Analyst say asset swap would not hurt Veolia finances
* Veolia stock up 3.2 percent, outpacing sector index
(Adds CDC no comment, updates shares)
By Marie Maitre and Sudip Kar-Gupta
PARIS, June 9 (Reuters) - French utility group Veolia is looking at ways to combine its transport arm with French transport group Transdev to create a new European leader in the travel sector, it said on Tuesday.
Veolia Transport is "interested in possible changes in the share capital of Transdev", a 70 percent-owned subsidiary of French state bank Caisse des Depots (CDC), Veolia said.
Veolia said its aim would be to form a new "global leader in mass passenger transit", with combined annual sales of more than 8 billion euros ($11.11 billion), but the Paris-based group said it would act as the industrial operator alongside CDC.
"The new group arising out of the merger of the two units would seek a stock market listing as soon as conditions permit," Veolia said in a statement.
CDC declined to comment.
Some analysts have valued Transdev at 1 billion euros including debt and suggested a deal could be made through an asset swap rather than a cash payment. However, Veolia Environnement declined to comment on the speculation.
"We have nothing more to say (other) than what is in our statement," said a spokesman at Veolia, which is the world's biggest water group and has a market capitalisation of 10 billion euros.
Veolia shares were up 5.2 percent at 22.18 euros at 1445 GMT, outpacing the rest of the European utility sector, as analysts said such a deal would not weigh on Veolia's finances.
"The completion of a deal by asset swap would not call into question the group's 2009 targets. It would, however, allow to reach a critical size (in transports) to better compete with rivals," said analyst Atallah Estephan at CM-CIC Securities.
One trader cautioned, however, that Veolia may find it hard to obtain the green light from the EU competition authorities.
Transdev, which runs bus and rail networks in cities such as London, Rome, Paris and Melbourne, last reported sales of 2.3 billion euros, while Veolia Transport posted a 6.1 billion euro turnover in 2008 -- or 17 percent of Veolia's total revenue.
Les Echos newspaper reported on Tuesday that Keolis, a transport group majority owned by French railway operator SNCF, was also interested in a deal with Transdev.
Keolis officials could not be reached for comment.
Citing no sources, Les Echos said Keolis and Veolia Transport had both sent non-binding proposals for a 25-percent stake that Parisian transport operator RATP owns in Transdev.
Les Echos also said that CDC had held several meetings last weeks to look at options for their stake in Transdev. ($1=0.7230 euro) (Additional reporting by Blaise Robinson; editing by Mike Nesbit, Dan Lalor and Simon Jessop)