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TOKYO, Aug 26 (Reuters) Mitsubishi Corp has decided not to sell its stake in Hokuetsu Paper Mills Ltd even if Oji Paper Co sweetens its bid for its smaller rival, the Nihon Keizai newspaper reported on Saturday.

Oji, Japan's largest paper maker, launched a $1.4 billion hostile bid for sixth-ranked Hokuetsu earlier this month, aiming to grab at least 50 percent of its shares at 800 yen apiece, a hefty premium to the market price before the bid was announced.

But it looks increasingly likely that Oji will fail as around two-thirds of Hokuetsu's shareholders oppose the offer, financial sources and a Hokuetsu source told Reuters this week, including Mitsubishi, which owns 24.4 percent of Hokuetsu.

This has raised speculation that Oji would sweeten its offer price, extend the tender beyond the current Sept. 4 deadline or lower its stake acquisition target to below 50 percent so it can successfully complete the bid.

But the board of Mitsubishi, Japan's largest trading house and Hokuetsu's top shareholder, decided at a meeting on Friday not to sell its stake to Oji even if the offer price is raised, the Nihon Keizai said.

That would make it very difficult for Oji to succeed even if it sweetens its offer.

Oji has requested a meeting with top executives at Mitsubishi but the trading house does not want to meet with Oji during the tender period because it could invite speculation that it might change its stance, the newspaper said.

Oji's bid marked the first hostile takeover attempt by one major Japanese manufacturer for a rival, and has therefore been seen as a watershed case that could help pave the way for a more aggressive style of mergers and acquisitions in Japan.

Oji met with Mitsubishi executives in late July to request that it cancel its planned purchase of 30 billion yen ($256 million) worth of new Hokuetsu shares at 607 yen each.

Mitsubishi went ahead with the purchase earlier this month.

Hokuetsu stock closed Friday down 3.36 percent at 776 yen.

REUTERS PV RN1330