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(Corrects headline and paragraph 1 to substitute joint venturefor swap of assets)
By Paul Sandle
LONDON, Feb 2 (Reuters) - Mobile phone networks operatorVodafone said on Tuesday it was in talks with JohnMalone's cable company Liberty Global about forming ajoint venture in the Netherlands.
Liberty Global owns Ziggo, the largest cable TV operator inthe Netherlands, while Vodafone is the second biggest mobilenetwork operator, behind KPN.
The two companies were in protracted talks about an exchangeof assets or broader merger across various European markets lastyear but could not agree on valuations.
Vodafone said it was now in talks with Liberty Globalspecifically about the creation of a joint venture in theNetherlands that would incorporate both companies' localoperating businesses.
"The discussions are ongoing and do not extend beyond thecreation of a joint venture in the Netherlands," it said.
Shares in Vodafone reversed earlier gains to trade down 2percent at 221 pence at 1553 GMT, reflecting some investors'disappointment that any tie-up was limited to the Netherlands.
Liberty's shares were flat in New York.
Vodafone is coming under increasing pressure in nationalmarkets from former national telecoms network monopolies likeDeutsche Telekom, Telefonica, KPN and now BT, which are able to sell packages of broadband internet,TV and mobile telecoms services.
It is responding with a two-pronged strategy of building itsown infrastructure and seeking complementary deals with othercompanies country by country and has already spent 15 billioneuros buying cable operators Kabel Deutschland in Germany andOno in Spain.
Just last week, analyst Jerry Dellis at Jefferies said Vodafone needed to buy Liberty Global to secure its long-termprospects.
Stephane Beyazian at Raymond James said some investorsexpected a wider deal between the two covering more markets -they have mutual operations in seven European countries - oreven that Liberty Global would buy out Vodafone.
"Today what you see is the market reaction of some of thebullish investors that were hopeful of a much biggercombination, but it doesn't prevent it from happening longerterm," he said.
There was pressure to do something quickly in theNetherlands because KPN's quad-play bundle was proving popularwith customers, he said.
A tie-up in the Netherlands would bring together Vodafone's5.2 million mobile customers with Ziggo's 4.1 million cablesubscribers, many of whom also take broadband internet and fixedline telecoms. (Additional reporting by Thomas Escritt in Amsterdam; Editingby Greg Mahlich)
