* Telefonica may be preparing bid for Telecom Italia - report
* Telecom Italia shares hit two-week high
(Adds analyst, company comments, shares)
MILAN, Jan 22 (Reuters) - Telecom Italia SpA (TLIT.MI) rose almost 4 percent on Friday on a report from a website that Spain's Telefonica (TEF.MC) could be preparing to bid for the Italian telecom operator.
The report, picked up by Italian daily la Repubblica on Friday after being published on the Dagospia website the previous day, said Telecom Italia was possibly preparing an all-share bid with a premium of 25 to 30 percent and a holding company to do the takeover.
Speculation on a possible takeover has mounted after Spanish Industry Minister Miguel Sebastian said this week Italy should be open to Spanish investors when asked about a media report on a merger between the two operators.
"Everyone is looking at the risk of being short in a potentially advantageous deal," a trader said.
At 1128 GMT, Telecom Italia shares were up 3.1 percent at 1.05 euros after hitting a two-week high of 1.074 euros, outperforming the DJ Stoxx telecoms index .SX6P, which was up 0.3 percent.
Telefonica and Criteria declined to comment. Italy's Mediobanca SpA (MDBI.MI), a Telecom Italia shareholder and the the investment bank Dagospia said was working on the bid, were not immediately available to comment.
The La Republicca report also said that shareholders would set up a new vehicle, which would own Telco's stake in Telecom Italia and the 5 percent Criteria, the holding company for La Caixa, Spain's biggest savings bank, holds in Telefonica.
Telecom Italia is controlled by the Telco shareholder group, which has a 24.5 percent stake. Telco comprises Telefonica, Mediobanca, Intesa Sanpaolo SpA (ISP.MI) and Assicurazioni Generali SpA (GASI.MI).
"The rumoured deal has two sides. The first side relates to Telco shareholders so it does not directly affect Telecom Italia shares," a note from a Milan broker said.
"The second side relates to a possible Telefonica-Telecom Italia share swap with a 30 percent premium on Telecom Italia shares. If confirmed it would be obviously very good news for Telecom Italia shares."
(Reporting by Francesco Segoni and Nigel Tutt in Milan, and by Robert Hetz in Madrid; editing by Karen Foster)
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