* Deal may cost Monsanto up to $40 bln in cash -sources
* Monsanto said to make initial offer of $45 bln - Bloomberg
* Offer at 35 pct premium to Syngenta's Thursday close - Bloomberg
* Monsanto may need partner to clinch deal -source
* BASF and Dow Chemical among other potential suitors -source (Adds offer details from Bloomberg report in paragraphs 5-7)
By Pamela Barbaglia and Arno Schuetze
LONDON/FRANKFURT, May 8 (Reuters) - Agricultural companies Monsanto and Syngenta are working with investment banks on a takeover deal that would create an industry behemoth with combined sales of more than $31 billion, three sources familiar with the matter said.
Swiss crop chemicals maker Syngenta is working with Goldman Sachs to assess the merits of a sale to the world's largest seeds company Monsanto, which is being advised by Morgan Stanley, the sources said.
Rumours of talks between the two companies gained momentum at the end of April, sending shares in Syngenta to a record high of 351 Swiss francs on May 4 before easing amid a broad decline in equity markets.
Spokesmen at Monsanto, Syngenta, Goldman Sachs and Morgan Stanley declined to comment.
Monsanto made an initial offer to buy Syngenta for about $45 billion, Bloomberg reported, citing people familiar with the matter. (http://bloom.bg/1Ilb9n2)
U.S.-based Monsanto offered about 450 Swiss francs ($487.59) per share, representing a premium of 35 percent to Syngenta's closing price on Thursday, Bloomberg reported.
Basel-based Syngenta rejected the offer, though left it open for Monsanto to make another offer or start talks, Bloomberg reported.
Monsanto, which initially approached Syngenta last year, has long been interested in its Swiss rival and the potential to base itself in Switzerland and benefit from lower taxes, one of the sources told Reuters.
Following attempts by the U.S. Treasury to clamp down on such moves, known as tax inversion, Monsanto may have to buy Syngenta in a cash rather than stock transaction and would be unable to redomicile in Switzerland, an industry source said.
The St Louis-based group, however, might struggle to finance such a deal, which could cost up to $40 billion, and may need to find a partner to take on Syngenta's U.S. seeds business before launching a takeover bid, another person familiar with industry said.
Monsanto foresees strong benefits from a takeover of Syngenta, which makes heavy research and development (R&D) investments in crop technology to increase the average productivity of crops such as corn, soybeans, sugar cane and cereals.
Monsanto, meanwhile, is focused on conventional and biotech seeds and last year raised its R&D spending to $1.7 billion from $1.5 billion in 2013.