UPDATE 2-DT in talks to merge T-Mobile USA with MetroPCS

* Deutsche Telekom close to deal for T-Mobile US - sources

* In advanced talks to combine U.S. unit with MetroPCS -sources

* Deutsche Telekom shares up 1.3 pct, MetroPCS up 19 pct

(Adds detail, analysts comment, updates shares)

By Edward Taylor and Nadia Damouni FRANKFURT/NEW YORK, Oct 2 (Reuters) - Deutsche Telekom

said on Tuesday it is in talks to combine itsT-Mobile USA unit with MetroPCS and take a majoritystake in the combined wireless service provider.

However the German company, which has been looking for a wayto bolster its customer-losing U.S. business, said that "theconclusion of the transaction is still not certain" as keyissues have not yet been finalized in its talks with MetroPCS.

The company, which tried to exit the U.S. market last yearbut failed to complete a $39 billion T-Mobile USA sale to AT&T, also said its board had not "taken the resolutionsnecessary for such a transaction".

MetroPCS shares were up 17 percent higher at $13.52 afterDeutsche Telekom confirmed the talks. A MetroPCS representativedid not return requests for comment on Tuesday.

Speculation that T-Mobile USA and MetroPCS were consideringa merger have come up in the past although analysts have pointedout that a deal would be complicated by the fact that bothcompanies use different network technologies. However, they areboth upgrading to the same high-speed technology.

A combination of No. 4 U.S. mobile provider T-Mobile USA andsmaller rival MetroPCS might spell bad news for third-rankedSprint , which also looked into buying MetroPCS. The planwas vetoed by Sprint's board at the last minute.

MetroPCS as well as rival Leap Wireless caters tocost-conscious customers but has been feeling the heat as biggerrivals such as Sprint enter their low-cost phone markets.

Sprint has been struggling to find its footing for the lastseveral years, and buying a company that is worth more than halfits market value would have significantly strained its alreadystretched finances.

"A T-Mobile/PCS combination could make it more difficult forSprint to merge with that combined entity longer term due topotential anti-trust complications," said William Power, ananalyst at Robert W. Baird & Co.

"That in turn could hinder Sprint's ability to gain morescale to compete more effectively with AT&T and Verizon," headded.

Sprint shares lost almost 5 percent on Tuesday, falling to$4.9. Deutsche Telekom shares closed up 1.3 percent inFrankfurt, while shares in LEAP jumped 12 percent.

Deutsche Telekom last year tried to sell its U.S. businessT-Mobile USA, once a strong growth engine, to AT&T but fierceregulatory opposition scuppered the deal, leaving the Germancompany with a $6 billion breakup package.

Deutsche Telekom has to compete with much bigger rivalsVerizon Wireless , AT&T Inc and Sprint Nextel .

In the second-quarter T-Mobile USA lost 205,000 customers inthe United States and is expected to feel the pressure from thelaunch of the new iPhone, which it will not be selling in theUnited States.

(Additional reporting by Arno Schuetze in Frankfurt, NicolaLeske in New York and Leila Abboud in Brussels; editing byElaine Hardcastle and Andrew Hay)

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Keywords: DEUTSCHETELEKOM TMOBILE/