By Maki Shiraki and Makiko Yamazaki

TOKYO, April 27 (Reuters) - Toyota Motor ( TM ) said

it is exploring the possibility of investing in a potential

buyout of key parts supplier Toyota Industries ( TYIDF ) - a

buyout that reportedly could cost $42 billion.

"We are currently exploring various possibilities, including

partial investment," the automaker said in a filing with the

Tokyo stock exchange on Saturday following reports about the

possible buyout.

Bloomberg News reported on Friday that Toyota ( TM ) Chairman Akio

Toyoda and his founder family have proposed acquiring Toyota

Industries ( TYIDF ) in a possible 6 trillion yen ($42 billion) deal.

Toyota Industries ( TYIDF ), which has a market value of 4 trillion

yen, said in a statement it had received proposals about going

private through a special purpose company but denied it had

received a buyout proposal from the Toyota ( TM ) chairman or the

Toyota ( TM ) group.

Two sources familiar with the matter said Toyota Industries ( TYIDF )

is considering tapping Toyota ( TM ) and its group companies as well as

major banks to fund a buyout. They also said the proposal did

not come from Akio Toyoda or the Toyota ( TM ) group.

The sources, who declined to be identified as the matter is

not public, said if Toyota Industries ( TYIDF ) were to go private, it

would help improve the Toyota ( TM ) group's corporate governance as

cross-shareholdings would be unwound.

Both Toyota ( TM ) and Toyota Industries ( TYIDF ) said in their statements

that nothing has been decided.

Toyota ( TM ) owned 24% of Toyota Industries ( TYIDF ) as of September last

year, while Toyota Industries ( TYIDF ) held 9.07% of Toyota ( TM ) and 5.41% of

Denso ( DNZOF ), another key Toyota ( TM ) supplier.

Toyota Industries ( TYIDF ) has faced increasing shareholder pressure

to unwind its cross shareholdings so that it can boost

shareholder returns and make investments.

It has sold some of its cross shareholdings including stock

in Aisin ( ASEKF ), another core Toyota ( TM ) group supplier.

One of the sources said going private would also give Toyota

Industries ( TYIDF ) the freedom to focus on growth strategies without

worrying about shareholder returns.

Cross-shareholdings, where companies hold shares in each

other and are very common in Japan, have been under increasing

scrutiny from regulators and shareholders as the practice can

insulate management from having to serve the interests of

general shareholders.

Toyota Industries ( TYIDF ), formerly Toyoda Automatic Loom Works, was

founded in 1926 by Sakichi Toyoda to manufacture automatic

looms. An automotive division within the company was created and

later spun off as Toyota Motor ( TM ). Toyota Industries ( TYIDF ) is a major

manufacturer of forklifts, produces the RAV4 sport utility

vehicle for Toyota Motor ( TM ) as well as engines.

($1 = 143.6700 yen)