(Updates with Honday comment, stock price)
TOKYO, Feb 19 (Reuters) - Honda Motor Co Ltd is in final talks with U.S. aircraft engine maker Teledyne Continental Motors Inc to set up a 50-50 joint venture in the United States to build propeller engines for small planes, the Nihon Keizai Shimbun reported on Thursday.
The report followed Honda's announcement on Monday that it would develop, make and market a jet engine for small business planes with General Electric Co .
A spokesman for Honda, Japan's second-biggest auto maker, said that it had opened talks with Teledyne in March last year and those talks were continuing, but no details had been decided.
"We were stunned by the report," he said. "It's totally up in the air whether we would do business with Teledyne."
Teledyne Continental is a unit of U.S. electronic components maker Teledyne Technologies Inc .
The newspaper said the new firm, which might be set up early this year, would make and sell engines as well as parts.
The U.S. is the largest market in the world for small aircraft and demand for engines, including replacements, is about 10,000 units a year, the paper said.
Annual sales of such engines there are estimated at 20 to 30 billion yen ($188-282 million), but the amount would be larger if after-sales service were included, it said.
Shares in Honda were up 1.1 percent at 4,580 yen on Thursday morning, compared with a 0.81 percent rise in the Nikkei average . ($1=106.57 yen)