By Maki Shiraki and Daniel Leussink

TOKYO (Reuters) -Japan's Nissan may call off its merger talks with Honda, according to a person familiar with the matter, adding that Nissan's board members were due to meet in the near future to decide a course of action.

The development puts in doubt a tie-up that would create the world's third-largest automaker by sales and raises fresh questions about how hard-hit Nissan could ride out its latest crisis without external help.

Reports of the merger talks ending sent shares of both carmakers higher on Wednesday, with Honda up more than 2% and Nissan up 1.6% against a slight decline in Tokyo's Nikkei 225 index.

Honda, Japan's second-largest car maker, and Nissan, its third-largest, last year said they were in discussions to merge their businesses, in what would mark a pivotal change for an industry that faces a vast threat from China's BYD and other new electric vehicle entrants.

But those talks have been complicated by growing differences on both sides, according to two people familiar with the matter, both of whom declined to be identified because they were not authorised to speak to the media.

Nissan's board is due to soon meet to discuss calling off the merger talks after Honda sounded it out about becoming a subsidiary, one of the people said, adding that such an arrangement was a departure from the original spirit of their discussions.

Honda, with a market value nearly five times bigger than Nissan, is increasingly worried about its smaller rival's progress in its turnaround plan, said the other person.

Japan's Asahi Shimbun newspaper earlier reported that the merger could be called off.

Spokespeople for both companies on Wednesday did not comment on whether merger talks were off, but said they would make an announcement in mid-February, as previously flagged.

Nissan has been hit harder than some other carmakers by the shift to EVs, having never fully recovered after years of crisis sparked by the arrest and ouster of former Chairman Carlos Ghosn in 2018.

The tie-up talks have coincided with the disruption posed by potential tariffs from U.S. President Donald Trump. Tariffs against Mexico would be more painful for Nissan than for Honda or Toyota, according to analysts.

Nissan's long-term alliance partner Renault had said it would be open in principle to the merger with Honda. The French automaker owns 36% of Nissan, including 18.7% through a French trust.