UPDATE 3-CF buys 7 pct of Terra in open market

* CF says bought 7 pct of Terra shares in open market

* Terra, CF shares rise in midday trade (Adds Terra comment)

NEW YORK, Sept 28 (Reuters) - Fertilizer maker CF Industries Holdings Inc (CF.N) said on Monday it has acquired a 7 percent stake in Terra Industries Inc TRA.N in its latest bid to increase pressure on Terra to enter into merger talks.

CF, which has launched an unsolicited effort to take over its smaller rival, said it purchased 6.99 million shares in the open market over the past two weeks for $247 million.

CF -- itself fending off a hostile takeover offer from Agrium Inc (AGU.TO), also a fertilizer maker -- has been trying to buy Terra since January and said in August that it was prepared to pay 0.465 of a share for every Terra share.

Terra has rejected CF's offer and last week announced it would pay shareholders a special $7.50 per share dividend, buy back some 2017 debt and raise up to $600 million through a new debt issuance.

CF also said on Monday it would adjust its exchange offer because of Terra's planned dividend and its own share price.

In a statement, Terra said that it would "review and consider the revised proposal in due course."

Analysts see Terra's special dividend, which will result in about $750 million being distributed to shareholders, acting as a deterrent to CF.

"Terra is definitely making it harder for CF to buy them, with this poison pill," said Broadpoint AmTech analyst Edlain Rodriguez.

However, CF said it is confident that both Terra's and its own stockholders support this business combination and that both sets of stockholders recognize its strategic merits.

"Terra stockholders will have significant ownership in the combined company and share in real and substantial synergies," CF Chief Executive Stephen Wilson said in a statement.

Stockholder approvals from both Terra Industries and CF Industries would be required for any deal to go ahead, unless Terra elects to not require CF Industries stockholder approval by structuring a transaction to include CF Industries preferred stock.

The New York Stock Exchange requires existing shareholders of a company to approve any transaction in which a company plans to issue more than 20 percent of its outstanding common shares. This rule does not apply in the case of preferred shares.

CF has already received U.S. and Canadian antitrust regulatory approvals for its takeover proposal.

Shares in Terra closed 1.9 percent higher at $35.86, while CF shares rose 2.1 percent to $86.06, both on the New York Stock Exchange. (Reporting by Euan Rocha and Matt Daily; Editing by Gerald E. McCormick, Peter Galloway, Gary Hill)