By Doug Young
HONG KONG (Reuters) - Spanish telecoms giant Telefonica (TEF.MC: Quote, Profile, Research) is stepping up its ties to China with a new deal with the country's No. 2 fixed-line carrier and an alliance with its top telecoms equipment maker, Spain said on Monday.
The Spanish government said during Chinese President Hu Jintao's ongoing visit to Madrid, Telefonica had signed a strategic agreement with China Netcom Group Corp. (Hong Kong) Ltd (0906.HK: Quote, Profile, Research), in which the Spanish operator already has a 5 percent stake.
The government did not give details, and Telefonica declined to comment, but Spanish newspaper Expansion reported that the deal would allow Telefonica to double its stake to 10 percent.
The additional stake would be worth US$542 million based on China Netcom's Monday closing price.
In June, Telefonica bought a 3 percent stake in Netcom for 240 million euros, and increased it in September to 5 percent, saying the entire investment cost 418.3 million euros ($490.1 million).
Madrid also said Telefonica had signed a collaboration deal with gear maker Huawei Technologies [HWT.UL], marking the latest step into Western Europe by China's top telecoms equipment maker.
A source close to the deal said it would allow the firms to develop and sell third generation (3G) mobile and digital home products in partnership.
"It will also include product sales in Latin America," said the source, who spoke on condition