Schaeffler mulls surrender to Continental- sources

* Financial crisis rips takeover blueprint to shreds

* "Radical" action needed to dig Schaeffler out of debt hole

By John O'Donnell and Philipp Halstrick

FRANKFURT, May 20 (Reuters) - Germany's Schaeffler is mulling a plan to sell big parts of its business to Continental (CONG.DE: Quote, Profile, Research), sources with knowedge of the matter said, a reversal of the daring swoop to buy its far bigger rival.

Last July, the German ball-bearing maker launched a hostile $18 billion bid to buy Continental but ended up collecting more shares than it could afford, lumbering it with a crushing debt millstone as car sales collapse.

Abandoning the plan would be a humiliating climbdown for ball-bearings baroness Marie-Elisabeth Schaeffler and mirrors a turning of the tables in Porsche's (PSHG_p.DE: Quote, Profile, Research) bid for Volkswagen (VOWG.DE: Quote, Profile, Research), which also backfired in the financial crisis.

"The logic of the original plan no longer works," said one source close to Schaeffler, referring to the group's bid to buy the bigger tyres-to-brakes group.