Singapore's state-owned Temasek Holdings has approached Nasdaq to buy its 30 percent stake in the London Stock Exchange, a newspaper reported on Sunday.

The Sunday Times said in an unsourced report that Temasek had made the approach in recent days and the deal could lead to a full takeover of the LSE by the Singaporean investor.

On August 20, Nasdaq Stock Market said it might sell its stake in the LSE, worth 800 million pounds ($1.6 billion), to bolster its chances of buying Nordic exchange operator OMX and it was already in touch with interested parties.

The U.S. exchange company said later in the day in a statement that it would not sell its LSE stake to a single buyer.

The reported interest by Temasek, which owns stakes in UK banks Barclays and Standard Chartered, comes amid growing protectionism in Europe and the United States towards sovereign wealth funds making aggressive overseas investments in search of higher returns.

The International Monetary Fund said in June it was growing uneasy about the trillions of dollars managed by largely secretive sovereign wealth funds because it fears their activities could disrupt financial markets.

Government-owned investment vehicles such as Temasek and its sister agency Government of Singapore Investment Corp control about $2 trillion -- roughly the size of France's economy -- and are expected to grow to $12 trillion by 2015.

The newspaper said several parties, including the New York Stock Exchange and the Chicago Mercantile Exchange, may enter the fray as well as investment and infrastructure funds, while the Observer newspaper said that Nasdaq was seeking to sell up to half of its LSE stake to Deutsche Boerse.

Temasek and Nasdaq were not immediately available for comment, while Deutsche Boerse declined to comment.

Nasdaq, eager to expand its presence in overseas markets, is locked in a $4 billion bidding war with Borse Dubai for OMX, which owns exchanges in Sweden, Denmark, Finland, Iceland and the Baltic states.

Nasdaq wants to use the sales proceeds to pay down debt and buy back shares, which would effectively raise the value of its cash-and-share bid for OMX and give it a boost in the fast-consolidating global stock exchanges.

Stock exchanges around the world have been looking at tie-ups to achieve global reach and economies of scale as members demand more sophisticated products and cheaper trading.

New York Stock Exchange owner NYSE Group became NYSE Euronext after snapping up pan-European exchange Euronext in April, while the LSE is buying Italian rival Borsa Italiana after fending off several advances, including Nasdaq's.

(Additional reporting by Ovais Subhani in Singapore and Andreas Framke in Frankfurt)

United kingdom NYSE Euronext London stock exchange NASDAQ OMX Group