Changes sourcing in paragraph 1, adds in paragraph 2 that the news was first reported by the Globe and Mail

By Maria Cheng

OTTAWA, July 6 (Reuters) - Canada has picked Germany's TKMS to build 12 submarines for its navy, according to a source familiar with the decision, deepening defense ties with Europe ahead of a NATO leaders’ summit centered on higher military spending.

The news was first reported by the Globe and Mail newspaper.

The announcement will be made before Canadian Prime Minister Mark Carney heads to the two-day summit in Turkey starting on Tuesday, the report said, citing sources.

The Prime Minister's Office did not respond to a request for comment. Carney was due to make an announcement related to security in Halifax on Monday afternoon. The German Embassy in Ottawa and the office of Canadian Defense Minister David McGuinty both declined to comment.

TKMS, majority-owned by German conglomerate Thyssenkrupp TKAG.DE, is offering its 212CD class submarine model in the tender, which it is also supplying to Norway's navy under a joint development program.

Shares in TKMS rose as much as 12.9% on the news, hitting their highest level in nearly four months.

Canada, under pressure from the United States to increase defense spending, has said it hit NATO's military spending target of 2% of GDP earlier than originally planned. NATO leaders have agreed to spend 5% of GDP on defense and security-related investments by 2035.

At a defense show in May, Carney said that both the submarines proposed by Germany and South Korea's Hanwha Ocean 042660.KS met the needs of the Canadian navy and that the winning bid would likely depend on the economic benefits being offered.

Carney pledged in his February defense industrial strategy that Canada would buy military equipment from allies "that spur reinvestment into the Canadian economy" and ensure "sovereign control over the operation and sustainment of the newly acquired assets."

South Korea's Hanwha Ocean previously said it would be able to deliver its first four submarines to Canada by 2035.

With its diamond shape, length of around 74 metres (243 feet) and non-magnetic steel, TKMS hopes the 212CD will become the new NATO standard.

TKMS CEO Oliver Burkhard told Reuters in January that it was in talks with Norwegian and German companies to offer a multi-billion ⁠dollar ​investment package spanning rare earths and battery ​chemicals to win the tender.

Burkhard told Canadian media TKMS could deliver four 212-CD submarines to the Canadian navy by 2036.