UPDATE 2-Telefonica studies Brasilcel break to win Vivo-source

* Hires lawyers to advise on joint venture breakup -source

* Deal with PT still possible to avoid long battle -analysts

(Adds analysts, background)

By Robert Hetz and Sarah Morris

MADRID, July 19 (Reuters) - Spain's Telefonica (TEF.MC) has hired lawyers to study a breakup of its joint venture with Portugal Telecom (PTC.LS), a source close to the matter said, after its takeover bid for mobile operator Vivo lapsed.

However, despite turning aggressive with its Portuguese partner, Spain's largest telecoms firm could yet strike a deal with PT and the Portuguese government to avoid a battle that could last months or even years.

Telefonica (TEF.MC) dropped its offer for PT's (PTC.LS) stake in the Brazilian mobile operator Vivo VIVO4.SA on Saturday after the deadline for its 7.15 billion euro ($9.28 billion) offer expired, declining a request by PT for more time. [ID:nLDE66G02D]

Telefonica has had its sights set on Vivo for years, aiming to merge the unit with its struggling fixed-line business Telesp in Brazil, but its recent bid was scuppered by the Portuguese government's veto. [ID:nLDE65T0MI]

A source on Monday told Reuters Telefonica had now hired Dutch firm De Brauw Blackstone Westbroek. Brasilcel, the joint venture with which Telefonica and Portugal Telecom own 60 percent of Vivo, is based in The Netherlands.

No one was immediately available at Telefonica or De Brauw to confirm the news.

Analysts thought Telefonica could argue for its 25-year joint venture agreement signed with PT in Amsterdam in 2001 to be dissolved, taking its case to the Court of International Arbitration in The Hague.

Portugal Telecom declined to comment on Monday on the possibility of a Brasilcel breakup, but Chief Executive Zeinal Bava said last month lawyers had advised him that it was impossible for Telefonica to dissolve Brasilcel unilaterally.

If dissolved, Telefonica could have the right to buy more Vivo shares on the Brazil bourse in a bid to acquire control, analysts said, but some noted that arbitration could drag on for months or even years.

"This appears to be far from easy in our view, given that the shareholders agreement appears to contain mechanisms to dissolve the JV only with the agreement of both parties," wrote JP Morgan in a note to clients.

Some analysts believe the legal uncertainty of whether Brasilcel could be easily broken up means Telefonica and Portugal Telecom are likely to resolve their fraught relationship outside the courts.

"We believe the offer will be quickly revived should the opportunity arise, regardless of any sabre rattling by Telefonica in the next few days," said Citi in a note to clients.

PT's request on Friday for an extension to Telefonica's July 16 deadline to accept the offer could be a signal the PT board was close to persuading its government to let the deal go ahead, said some analysts.

The pressure is already on the Portugal Telecom board. On Monday, a number of brokerages cut their price targets on PT.

Shares in PT fell 4 percent on opening but recovered during the day. At 1216 GMT they were down 0.07 percent to 7.98 euros. Telefonica was up 1.27 percent to 16.37 euros.

Telefonica faces stiff competition in Brazil from its biggest rival, Carlos Slim's America Movil (AMXL.MX), which is already integrating its fixed and mobile businesses. Full control of Vivo would offset the impact of slowing revenues from Telefonica's largely mature businesses in Europe. (Additional reporting by Andrei Khalip; Writing by Sarah Morris; Editing by Samia Nakhoul)