* Further break from Ford seen as positive - analyst
* Mazda shares lose as much as 5 pct but then pare losses
* Focus is on if/when Mazda will seek new capital alliance (Adds background)
By Chang-Ran Kim, Asia autos correspondent
TOKYO, Oct 18 (Reuters) - Shares of Mazda Motor Corp slipped on Monday after news at the weekend that top shareholder Ford Motor Co plans to sell almost all of its remaining stake in the Japanese automaker it once controlled.
A source told Reuters on Saturday the U.S. automaker would slash its ownership of Mazda to a few percent from 11 percent, and that trading house Sumitomo Corp and other Japanese business partners of Mazda were in talks to buy the shares.
Ford's stake has been declining, so the move was not seen as a big surprise, and JP Morgan Securities auto analyst Kohei Takahashi said he viewed a further break from Ford as positive rather than negative.
"Mazda has indicated that it wants to expand sales of its SKY series of next-generation powertrains in the future, and we believe that achieving greater capital independence would help Mazda expand its business with companies outside the Ford group," he wrote in a note to clients.
Mazda's shares lost as much as 4.7 percent to 204 yen soon after the market opened in Tokyo, but recovered to 213 yen, down 0.5 percent, by the end of the morning session. The benchmark Nikkei average was up 0.5 percent.
With Ford's equity participation down to just a few percent, the next big question would be whether -- or how long -- Mazda will hold out on its own as a smaller but technologically savvy car maker without a major capital alliance.
"Ultimately this could mean that at some point Mazda finds itself aligned with someone else," CLSA Asia-Pacific Markets auto analyst Christopher Richter said.
"As I scan the horizon of other Japanese, European or U.S. automakers, nobody jumps out. The most likely suspect would be a Chinese or Indian automaker with global ambitions."
Analysts said, however, that Mazda would likely prefer to stay independent. Mazda officials have privately lamented the lack of flexibility in the past even under Ford's control.
"They're not desperate, so (a new grouping) doesn't have to happen tomorrow or even next year," Richter said.
"They can make an argument (to their shareholders) to stay independent as long as they're profitable. And because a sale to a Chinese automaker, for example, would be controversial, they may not need a hell of a lot of convincing."
Mazda has forecast a net profit of 5 billion yen ($61.40 million) for the year to March 31, 2011, but faces worsening conditions under the yen's rise. Mazda, which builds most of its cars in Japan, is especially vulnerable to a strong yen.
ENGINEERING SAVVY
While Mazda has no hybrid technology of its own, it is seen as among the most advanced in internal combustion engine technology, becoming one of the first Japanese automakers to introduce an automatic engine-idling feature to the market.
Through a new generation of gasoline and diesel engines and transmissions under its "SKY" series, Mazda is aiming to improve the fuel economy on its cars by 30 percent by 2015, compared with 2008 levels, without using a hybrid or pure electric system.
While the long-time partners have many intertwined operations, Mazda and Ford have been growing apart in some areas. In the most recent distancing, Mazda in March turned to Toyota Motor Corp for help in developing its first hybrid car, instead of Ford.
Ford's stake sale will likely be made by the end of the year, the source, who spoke on condition of anonymity because the deal has not been made public, told Reuters. The news was first reported by the Nikkei business daily.
Both Ford and Mazda called the report speculation, issuing similar statements stressing their strategic alliance remained intact.
Mazda Chief Executive Takashi Yamanouchi is due to address the media on Wednesday about the company's next-generation technology. (Additional reporting by Daiki Iga; Editing by Edwina Gibbs)