(Updates share prices, adds detail of state's ownership of CESP and CESP's activities.)
By Paula Arend Laier and Luciano Costa
SAO PAULO, July 15 (Reuters) - Shares of Brazil's Cesp rose as much as 21 percent on Friday after the finance secretary of Sao Paulo state, the company's main shareholder, told investors that Cesp is considering a sale of a controlling stake in the power utility.
According to a source present at an investor meeting arranged by JPMorgan Chase & Co, state secretary Renato Villela said Sao Paulo state will analyze the sale of the 36 percent stake it has in Brazil's No. 4 electricity generator. The source spoke on condition of anonymity.
The state owns 94 percent of Cesp's common shares and 6 percent of preferred shares, which are only lightly traded. The state, coupled with a 5 percent stake that a state participations company owns in Cesp, has voting control of the utility.
Preferred shares in Cia Energética do Estado de São Paulo SA , as Cesp is formally known, rose in midday trading in Sao Paulo, putting them on track for their biggest one-day jump in nearly eight years.
Common shares rose 26 percent, on track for their biggest gain since October 2008.
Word of a potential sale comes amid a flurry of mergers and acquisitions in Brazil's electricity industry as longtime holders exit the sector - among them, debt-laden regional governments that need raise cash to cope with Brazil's harshest recession in eight decades.
CESP has 6,650 megawatts of generation capacity and is the largest power supplier in the State of Sao Paulo, Brazil's most populous and industrialized state. It operates five hydropower dams, three on the Paraná River and three in the drainage basin of the Paraíba do Sul River. (Additional reporting and writing by Jeb Blount in Rio de Janeiro and Guillermo Parra-Bernal; editing by Chizu Nomiyama and Grant McCool)