UPDATE 2-Turk Telekom in talks with banks on loan

* Turk Telekom says in talks on loan

* Loan to fund Avea mobile unit

(Adds closing price, details on banks)

ISTANBUL, Sept 10 (Reuters) - Turkish fixed-line operator Turk Telekom (TTKOM.IS) said on Thursday it was in talks with banks on a loan to fund its Avea mobile phone unit.

It gave no details about the nature of the loan, but banking sources close to the deal told Thomson Reuters LPC on Wednesday the company was seeking a $600 million, three-year syndicated loan.

The club deal is being coordinated by Citi, HSBC and WestLB, with whom the borrower held an initial meeting on Tuesday, the sources added.

Proceeds could be used to refinance existing group debt, one of the bankers said.

Turk Telekom shares closed down 1.35 percent at 4.40 lira, underperforming the Istanbul blue-chip index .XU100 which closed 0.76 percent higher.

Turk Telekom's Avea mobile phone unit agreed a $1.6 billion financing in April 2007, according to Thomson Reuters LPC data.

The company posted a 20 percent fall in first-half net profit in July as costs from Avea soared. Even though mobile revenues rose, Avea was hit by higher interconnection costs amid a fierce price war among Turkey's mobile phone operators.

Avea is No. 3 in the market behind Turkcell (TCELL.IS) and Vodafone. (VOD.L)

Turk Telekom is controlled by Dubai-based Oger Telecom and was listed on the Istanbul Stock Exchange in May 2008. Some 30 percent of its shares still belong to the Turkish government, while the remaining 15 percent are publically traded. (Reporting by Alexandra Hudson; Editing by Rupert Winchester and Simon Jessop)