LONDON, Sept 8 (Reuters) - The $10 billion takeover battle for British supermarket group Morrisons (MRW.L) between two U.S. private equity groups looks set to be decided by a rarely used auction process. Morrisons said on Wednesday it was in talks with Clayton, Dubilier & Rice (CD&R), Fortress Investment Group and Britain"s takeover regulator about an auction to settle its future. Last month, Morrisons agreed a 7 billion pound ($9.6 billion) offer from CD&R, which has former Tesco (TSCO.L) boss Terry Leahy as a senior adviser. However, the rival consortium led by Softbank-owned (9984.T) Fortress could still trump that bid. read more The fight for Britain"s fourth-largest grocer after Tesco, Sainsbury"s (SBRY.L) and Asda, is the most high-profile looming takeover amid a raft of bids and counter bids, reflecting private equity"s appetite for UK Plc. read more Morrisons said that as neither bidder had declared its offer final, it was talking to both of them and the Takeover Panel, which governs M&A deals in the UK, about "an orderly framework for the resolution of this competitive situation" - which would typically be an auction. Morrisons said shareholder meetings to vote on the CD&R offer would be convened for around the week starting Oct. 18. It said any auction would take place prior to these shareholder meetings, on a date announced by the Takeover Panel. Following completion of an auction, Morrisons shareholders would vote on either a Fortress or a CD&R offer, depending on which offer Morrisons" board recommended. Morrisons said it expected a scheme document on CD&R"s offer to be posted to shareholders around Sept. 25. CD&R"s latest offer is worth 285 pence per Morrisons share - a 60% premium to Morrisons" share price before takeover interest emerged in mid-June.Fortress, whose last offer was pitched at 272 pence a share, said on Wednesday it "continues to consider its options." Morrisons shares were trading at 291.3 pence at 1044 GMT, indicating investors are hoping for a higher bid. CD&R had no further comment. AUCTION PROCESS The Takeover Panel"s standard auction structure is bidding over a five-day period. However, if all parties are in agreement a different structure can be used - for example bidding over just one day. Last month, the Takeover Panel set up an auction of British inhaler company Vectura (VEC.L) for suitors Philip Morris International and U.S. private equity firm Carlyle. However, in the event Carlyle decided not to raise its offer. Morrisons, which trades from 497 stores and has a staff of over 110,000, reiterated on Wednesday that in addition to the financial terms of any offer it places "very significant emphasis on the wider responsibilities of ownership", including the importance of employees, customers, pension trustees and suppliers. Last month, the trustees of Morrisons" pension schemes warned a takeover by either CD&R or Fortress could "materially weaken" the security of the schemes if no additional protection was agreed. read more Morrisons is due to publish first half results on Thursday. ($1 = 0.7266 pounds)