TOKYO (BLOOMBERG, REUTERS, AFP) - Japan's Sharp Corp reportedly agreed to a 700 billion yen (S$8.77 billion) rescue deal from Taiwan's Foxconn Technology Group in what would be a rare foreign takeover of a Japanese firm.

Sharp has rejected a competing offer from a Japanese government-backed fund, the Nikkei reported on Thursday (Feb 25).

A deal with Foxconn, known formally as Hon Hai Precision Industry Co, would be the largest acquisition by a foreign company in Japan's insular technology sector.

Shares in the Sharp briefly rose as much as 5.8 per cent after the report but pared gains to last trade flat.

Saddled with debt and struggling with chronic losses, the board of the century-old consumer electronics maker had to choose between tate-backed Innovation Network Corp of Japan's plan to restructure by spinning off businesses, or staying whole but under a foreign parent.

A successful bid would mean Foxconn, the main assembler of Apple Inc's iPhone, takes over one of the largest suppliers of screens for phones and tablets. Chairman Terry Gou is seeking to broaden Foxconn's remit, transforming it into a company that also makes key electronics components and devices.

The battle has been seen as a test of Japan's willingness to open its economy, following Prime Minister Shinzo Abe's appeal for market reforms and overseas investments to boost growth. Struggling companies have long been able to rely on the country's government and banks for support.

Nikkei's report follows years of on-off talks with Foxconn, which had offered 550 yen a share for a stake in Sharp in 2012, around which time the yen's climb to a postwar high undermined profit and lower-cost challengers in South Korea and China trounced its pioneering liquid-crystal display television business. 

Sharp was once a highly profitable manufacturer of premium TVs and a favoured screen supplier to Apple. But it has struggled in recent years as massive investments in advanced LCD plants backfired amid price competition with Asian rivals.

The deal comes after five years of courting by Foxconn founder Gou, who sees ownership of Sharp as a way to better compete with Asian rivals such as Samsung Electronics Co.

Sharp's liquid crystal display (LCD) panel technology is expected to help consolidate Foxconn's position as the world's biggest assembler of Apple Inc's iPhones and iPads.

For Sharp, Foxconn's ample funds will help stabilise its finances while the Taiwanese company's global sales channels could help improve sales.