Tokyo: Japan`s Toyota Motor Corp and Suzuki Motor Corp on Wednesday denied a newspaper report they were discussing a potential partnership that could include a capital tie-up.

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The Nikkei business daily said in a front-page report on Wednesday that Suzuki, Japan`s fourth-largest automaker, and global top-seller Toyota were discussing a possible partnership from a variety of angles including a cross-shareholding deal.

"It is not true that we have entered negotiations over a tie-up with Toyota," Suzuki said. Toyota issued a similar statement.

Despite the denials, shares in Suzuki maintained strong gains, climbing 10 percent in morning trade. Toyota was up 3.6 percent, while other Japanese auto stocks also made robust gains.

The Nikkei also reported that Toyota is planning to turn Suzuki`s main domestic competitor Daihatsu Motor Co into a wholly owned subsidiary through an equity swap. Toyota owns 51.2 percent of Daihatsu.

Toyota and Daihatsu said in separate statements that the group has been considering various options, including turning Daihatsu into a wholly owned unit, but that nothing has been decided.

Trade in Daihatsu shares was set to resume later in the morning.

Toyota and Suzuki are looking to take advantage of each other`s know-how and capitalise on demand for compact cars in India and other emerging economies, the Nikkei said without citing sources.

Suzuki, which specialises in small cars, is India`s top-selling car maker through its local unit Maruti Suzuki India Ltd .

But the automaker has long been under pressure to find a bigger partner to develop next-generation fuel-saving technology as governments around the world tighten emissions and fuel economy regulations.

Suzuki formed a capital alliance with Volkswagen AG in early 2010 but relations soon soured, leading to a years-long dispute in arbitration court that ended last year with the unwinding of their cross-shareholding.