The announcement follows a flurry of mega banking mergers and alliances in Japan's financial services industry, but few analysts believe the two companies -- Japan's biggest life insurer and its biggest trust bank in terms of pension assets under management -- are likely to go that far.

"The latest alliance move looks to cover only a limited area," said Nozomu Kunishige, a senior Lehman Brothers analyst.

By achieving economies of scale, they would be able to share costs in an area that requires hefty investment in computer systems, Kunishige said.

The two firms said they were considering a possible tieup on so-called master trusts. Developed in the United States, a master trust is a vehicle for keeping track of all a pension fund's many and varied investment portfolios and pulling together a comprehensive report on the overall status of the fund.

Japan is expected to give the go-ahead for master trusts asearly as early next year, industry officials said.

"We are now studying possible business cooperation withMitsubishi Trust on master trust operations to be introduced sometime later," said Nippon Life, which manages some 12 trillion yen ($114 billion) in corporate pension funds, more than any other Japanese life insurer.

A spokesman for Mitsubishi, which issued a similar statement,said offering master trusts would help it expand its corporate pension management business. Mitsubishi is the market leader in the field among Japan's trust banks with more than six trillion yen under management.

Japan firms keen on pension management

Japanese firms are becoming more selective in choosing firmsto manage their pension funds, as new accounting rules will be introduced next April requiring them to make full disclosure.

The Nihon Keizai financial daily said the proposed venture was likely to take the lead in setting commissions for master trusts because the two firms have a combined 20 percent share of the market for corporate pension funds managed by life insurers and trust banks.

Lehman's Kunishige said other companies might also join theplanned venture, further easing the investment burden.

On the Tokyo Stock Exchange, shares in Mitsubishi Trust rose to a 1999 high of 1,518 yen following news of the tie-up before closing 56 higher at 1,498, a gain of 3.88 percent.

But as the Japanese banking sector has already climbedstrongly on speculation of more industry-wide shakeups, analysts doubted that the shares could go much higher for now.

Nippon Life has stood aside from the recent rash of mergers,preferring to seek partial alliances with firms that are strong in their particular fields.

In September, for example, it unveiled an alliance inconsumer finance and online banking with Sakura Bank, a market leader with 15 million account holders.

Kunishige said he expected Nippon Life to stick to itsgo-it-alone policy. "There are still no signs of it starting to seek a comprehensive tie-up with any particular firms," he said.