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* Telecom Italia seen in play before year out - Bernstein
* Carlos Slim could be eyeing firm's Brazil unit - analyst
* Telecom's controlling shareholder pact under discussion
* Shares rise as much as 10 percent to one month high (Adds more analyst comment, background, shares)
By Stephen Jewkes
MILAN, Aug 30 (Reuters) - Telecom Italia SpA shares jumped as much as 10 percent on Friday, on speculation itmight be the next quarry in a recent upsurge in dealmaking inEurope's telecoms industry.
Analysts at brokerage Bernstein said a lowly valuation, anattractive business in Brazil and a willingness among someTelecom Italia shareholders to sell could make the company atakeover target before the year is out.
They tipped Vodafone, Telefonica Softbank, and AT&T - possibly in combination with Mexicanbillionaire Carlos Slim's America Movil - as potentialbidders and said the shares could double from current levels.
At 1330 GMT, Telecom Italia shares were up 9.6 percent at0.4176 euros, the biggest rise by a European blue-chip stock, after touching a one-month high of 0.4218 euros.
The company was not immediately available to comment on thespeculation.
The telecoms sector has seen a surge in dealmaking ascompanies look to take advantage of low interest rates, and asEuropean players battle to cope in a saturated market withrecession-hit consumers and expensive network upgrades.
U.S. group Verizon Communications Inc is close tobuying an outstanding stake in Verizon Wireless from VodafoneGroup Plc for potentially $130 billion, sources close tothe matter have said, while a report said AT&T would examineVodafone's remaining assets.
Spain's Telefonica has agreed a deal to buy German mobileoperator E-Plus from KPN, while Carlos Slim's AmericaMovil (AMX) threatened on Friday to abandon a plan to buy therest of KPN after the Dutch group's foundation said it mightblock a deal.
A Milan-based broker said Slim's next port of call could beBrazil, via Telecom Italia.
"We believe that America Movil could well make TelecomItalia an offer they can't refuse for (its Brazilian asset) TIMBrazil," said the broker, who asked not to be named.
Shares in debt-laden Telecom Italia have been languishingnear historic lows due to falling margins in Italy and aslowdown in Brazil, its other main market.
"Telecom Italia is the cheapest of stocks we cover, tradingat just 4.0 times EBITDA (earnings before interest, tax,depreciation and amortisation), a 22 percent discount toincumbent peers," the Bernstein analysts said, referring toother firms with leading positions in their home markets.
They said the Italian government in theory viewed TelecomItalia as a strategic asset, but might be willing to acceptcertain foreign bidders.
Prime Minister Enrico Letta said earlier this month therewere no plans for state holding CDP to invest in Telecom Italia.
"We think Vodafone, Telefonica, AT&T/AMX and Softbank wouldprobably all be welcome in roughly that order," Bernstein said,adding that Telefonica - the biggest stakeholder in TelecomItalia's core investor group Telco - and a combination of AT&Tand America Movil (AMX) were the most likely suitors.
Telco's investors - Telefonica, Mediobanca,Generali and Intesa Sanpaolo - have until theend of September to say if they want to exit the vehicle.
Mediobanca has already said it plans to leave while Generali has said it would eventually do the same but whenconditions were right.
Telecom Italia was involved in abortive talks earlier thisyear with Hong Kong's Hutchison Whampoa over apossible tie-up.
Last year, Telco shareholders turned down an offer byEgyptian tycoon Naguib Sawiris to inject 3 billion euros of cashinto the debt-laden Italian telecoms company. (Editing by David Cowell and Mark Potter)
