UPDATE 4-Telefonica wins battle for Brazil's Vivo

* PT agrees to sell its share in Vivo to Telefonica

* 7.5 bln euro price, staggered in 3 payments

* Price 350 mln euros higher than earlier offer

* PT to buy 22.4 pct stake in Oi's Telemor Norte Leste unit

* PT to pay $4.77 bln for Telemar buy

* PT shares up 5 pct, Telefonica up 0.5 pct

(Adds confirmation, financing details, share price, graphic)

By Elisabeth O'Leary

MADRID, July 28 (Reuters) - Spain's Telefonica (TEF.MC) has won its battle for a bigger share of the burgeoning Brazilian market, raising its offer for Portugal Telecom's (PTC.LS) stake in mobile operator Vivo VIVO4.SA to 7.5 billion euros.

The long-sought-after takeover, a coup for Telefonica Chairman Cesar Alierta, makes the telecoms group the biggest in Brazil whether measured by its 69.2 million clients or its 2009 revenues of 11.8 billion euros, Telefonica said.

For its part, PT announced an agreement with Brazilian phone giant Oi (TNLP4.SA)(TNE.N) that ensures its continued presence in Portugal's former colony and soothes fears that it could be relegated to a mainly Portuguese carrier.

Investors said the Vivo deal offered clear growth prospects and ended the uncertainty that has dogged Telefonica shares since the last chapter of the takeover battle began two months ago.

Telefonica shares were up around 0.5 percent to almost 17 euros at 1311 GMT versus a flat European telecoms index .SXKP. PT shares, which had been suspended pending the company's statement, rose 4.58 percent to 8.68 euros at 1311 GMT.

The Vivo deal has the all-important blessing of Portugal's government, which rejected Telefonica's earlier bid, and will allow the Spanish telecom group to offset the impact of slowing revenues from its largely mature European businesses by boosting its presence in the country of 190 million.

That is key now that Telefonica's main rival, Carlos Slim's America Movil (AMXL.MX), is integrating its fixed and mobile businesses in Brazil. Telefonica wants to do the same with units Telesp and Vivo.

Brazil's phone giant Oi said it had signed an agreement with PT for an "eventual" alliance that involves PT taking a 22.4 percent stake in its operating unit Telemar Norte Leste (TMAR5.SA) for 8.44 billion reais ($4.77 billion).

Newspapers in Spain and Portugal had earlier reported that PT would use proceeds from the Vivo sale and a capital hike to fund the purchase of a stake in Oi.[ID:nLDE66Q2C9].

Highlighting the political sensitivities of the deal, Portugal's cash-strapped government risked a major legal battle last month, when it used its golden share in PT to veto the previous offer for Vivo.[ID:nLDE66L0Z9]

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For a graphic on recent merger activity:

here

Graphic showing Brazilian wireless market share: here

For BreakingViews column on Vivo battle: [ID:nLDE66R0MV]

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FUTURE GROWTH

The price, confirmed by PT and Telefonica on Wednesday, is near the maximum the Spanish telecoms group could afford and more than the entire 7.4 billion euro ($9.61 billion) value of PT itself, but analysts said it was worth it.

Some analysts speak of synergies worth up to 4 billion euros from the Vivo takeover and the planned merger of Telefonica's fixed-line and mobile holdings in Brazil -- that suggests the deal would be accretive despite the higher price tag.

"Telefonica can pay up to 7.5 billion euros without destroying value," said Georgios Ierodiaconou at ING in London.

On Tuesday, Telefonica closed an 8 billion euro loan which was oversubscribed, supporting its bid for Vivo [ID:nLDE66Q1EA].

Telecoms has been one of the most dynamic industries in fast-growing Brazil's economy over the past year, a byproduct of a resilient job market and growing family income.

Indeed, Vivo acquired 2 million new subscribers from April to June, taking 30 percent the market.[ID:nN2789134]

The acquisition was approved on Wednesday by the boards of both PT and Telefonica, which will also study the possible purchase of Dedic, PT's contact centre business in Brazil.

Since payment to PT is staggered into three stages, the current value of the takeover was 7.3 billion euros, Telefonica said. It is expected to close in under 60 days.

"The deal is a bit more dilutive given the huge premium paid, but not materially... and probably is reflected in the share price," said Javier Borrachero, an analyst at Kepler in Madrid, who estimates potential synergies at 2.8 billion.

"The positive news for Telefonica is that it finds a solution for Brazil, its merger premium abates and the medium term guidance becomes easier to meet."

Telefonica is expected to post flat first-half net profit, [ID:nLDE66L0KB]

(Editing by Lin Noueihed; Additional reporting by Shrikesh Laxmidas in Lisbon) elizabeth.oleary@reuters.com; +34 91 585 8295; Reuters Messaging: elizabeth.oleary.reuters.com@reuters.net ($1=.7746 Euro)