Suzuki shares surge on possible Volkswagen tie-up

* Suzuki shares rise as much as 7.7 pct in flat market

* Some investors wary, waiting for official decision

TOKYO, June 26 - Shares of Suzuki Motor raced to a 10-month high after a source said that Volkswagen is exploring a cooperation deal with its Japanese rival to boost the German carmaker's presence in ultra small cars.

Cooperation with Suzuki, which dominates Japan's 660cc minivehicle market along with Toyota unit Daihatsu Motor Co, could yield a new model for Volkswagen, the source said.

Volkswagen is looking to secure a cooperation deal by taking a 10 percent stake in Suzuki, reported manager magazin, a German magazine.

But some investors were wary.

"If they are really going to make cars together, bringing together production facilities and linking their logistics, this could help both, but a capital tie-up by itself will not stimulate demand," said Kazuyuki Terao, director at investment fund RCM Japan.

"Suzuki's profits are coming mainly from India and Japan. Europe doesn't have a big impact."

Suzuki's 54 percent Indian unit Maruti Suzuki is that country's biggest carmaker thanks in part to its best-selling Alto mini car.

"It's not a negative, as there is a limit to doing things on one's own in an auto market like this," said Naoki Fujiwara, a fund manager at Shinkin Asset Management. "But I would have to take a look at what they actually do."

A spokesman for Suzuki could not comment, saying he had not heard anything on a potential tie-up, while Volkswagen declined to comment.

Shares of Suzuki were trading up 5.8 percent at 2,200 yen, after rising as much as 7.7 percent to a 10-month high. Tokyo's auto index was up 0.4 percent.