* Intesa-UBI deal set in motion further consolidation

* Banco BPM scouting for potential M&A partners

* Banco BPM CEO welcomes Cimbri's comments

* Talks with Credit Agricole have cooled down-sources

MILAN, Nov 20 (Reuters) - Italy's third-largest bank Banco BPM on Friday welcomed the possibility of a merger with BPER, after the biggest shareholder in its rival threw its weight behind the idea.

Banco BPM CEO Giuseppe Castagna reaffirmed his bank's interest in exploring tie-ups in response to comments by Carlo Cimbri, head of BPER's biggest shareholder Unipol, that the idea of a Banco BPM deal with BPER was "fascinating."

Cimbri said in a newspaper interview he viewed favourably an accord that would create a group with 300 billion euros ($356 billion) in assets, rooted in Italy's wealthy north.

"It would have sizeable market share in the country's most productive areas and extremely significant economies of scale," Cimbri told Il Sole 24 Ore daily. Unipol holds 19% of BPER.

Castagna said by email that Banco BPM would always consider tie-ups with a strong industrial rational and fit to boost value for shareholders.

"In this respect, we are pleased by comments made by the Unipol CEO Cimbri, the main investor in BPER, in relation to a possible consolidation deal."

Castagna has been actively looking for a merger partner after rival UBI was snapped up by Intesa Sanpaolo in a takeover that UBI's management sought in vain to thwart.

Castagna has said the birth of this new "banking behemoth" forced everyone else to consider similar moves.

Cimbri said BPER would "analyse with great attention" any proposal by Banco BPM.

"A project that creates value and is consistent with shareholders' interests would have their backing and that of the market," he was quoted as saying.

BPER shares were up 3.5% by 1320 GMT, Banco BPM gained 3.4%.

Broker Equita said BPER-Banco would have 13.6% of the domestic market in terms of branches, behind Intesa's 19% and ahead of UniCredit's 11%.

Unipol has already steered BPER on to an expansion path by backing the acquisition of branches and assets from the Intesa-UBI group.

The BPER deal, which was engineered with the help of Mediobanca, allowed Intesa to overcome major antitrust opposition to the UBI takeover.

Backed by Unipol, BPER has just raised 800 million euros in capital to fund the acquisition, which it said could lead to further M&A once it had integrated the new business.

In the meantime, Banco BPM had widened ongoing commercial discussions with Credit Agricole to assess a potential merger, but discussions have stalled, sources said.

A merger deal between Banco BPM and BPER collapsed at the last minute in 2007 but a tie-up has since remained a possibility.

In a further catalyst for potential deals, the Treasury is looking for a buyer for Monte dei Paschi, in which Italy owns a 68% stake after a 2017 bailout.

Sources have said the Treasury has considered both Banco BPM and BPER as potential candidates, but Monte dei Paschi has failed to elicit any interest so far.

Rome is now working on a package of incentives to entice buyers and has been focusing on UniCredit as the preferred partner.

"Banco BPM is a much better deal than Monte dei Paschi. BPER is busy with those Intesa branches, but Cimbri knows that now may be the time to act," an Italian banker said requesting anonymity.

($1 = 0.8417 euros) (Additional reporting by Giuseppe Fonte in Rome; editing by Agnieszka Flak and Jane Merriman)