UPDATE 2-Sainsbury shares jump as Qatari bid talk revives

* Sainsbury, QIA, Sainsbury family decline to comment

* Traders cite talk of bid at 420p per share

* Shares jump as much as 20 percent

LONDON/DUBAI, Oct 15 - J Sainsbury Plc shares leapt as much as 20 percent on Thursday on talk that Qatar's sovereign wealth fund was planning a renewed offer for the British grocer after dropping a previous bid proposal in 2007.

Traders reported speculation of a possible offer at 420 pence a share which would value Sainsbury at about 7.7 billion pounds ($12.5 billion), well below the previous Qatari bid proposal of 600 pence.

At 1301 GMT, Sainsbury shares, which have risen sharply on rumours of a bid from the QIA in the past, were up 11.2 percent at 345.8 pence, with volume running at over 600 percent of its 90-day average.

The stock earlier hit a 13-month high of 373p and was briefly suspended by the London Stock Exchange during a burst of frenzied trading,

"No comments on speculation," said John Elkhair, advisor to the CEO at Qatar Investment Authority (QIA), in a text message.

Sainsbury, Britain's third-biggest supermarket group, also declined to comment, as did a spokesman for the Sainsbury family, which own around 17 percent and rejected the QIA's previous bid attempt.

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The QIA owns around 26 percent of Sainsbury following the earlier failed bid attempt.

Some analysts were sceptical of another bid materialising, noting the QIA did not participate in a share placing by Sainsbury in June in which its stake was slightly diluted.

"I know a lot's changed since then (2007) but if the family wouldn't sell at 6 pounds (a share) it's difficult to see why they'd sell at 420 (pence)," said one analyst who declined to be named.

Some also questioned whether debt markets had improved enough for the QIA to secure the necessary financing, the issue which holed its previous attempt.

However, the QIA has been active in recent months, buying a stake in German automaker Porsche, while its property arm Qatari Diar raised a $1.1 billion syndicated Islamic facility which it said would fund European transactions.

Separately, the QIA's investment arm Qatar Holding earlier this month became the biggest shareholder in Songbird Estates, which owns much of London's Canary Wharf business hub.

Some traders reported talk that former Barclays Plc banker Roger Jenkins was broking a deal.

A spokesman for Jenkins' corporate advisory finance firm declined to comment. Jenkins left Barclays in August to set up the company, which has a specific focus on the Middle East.

Most of the Qatari stake in Sainsbury was bought at around 575 pence. (Additional reporting by Simon Falush, Joanne Frearson, Atul Prakash and Steve Slater; Editing by David Cowell and David Holmes)