UPDATE 3-Mexico's Televisa says buying 50 pct of Iusacell

* Televisa investing $1.6 billion

* Taking 50 pct stake in Iusacell convertible debt

* Televisa shares plunge over 4 pct on the news (Adds Banco Azteca comments; updates stock quotes)

By Patrick Rucker

MEXICO CITY, April 7 (Reuters) - Mexico's top broadcaster Televisa has struck a $1.6 billion deal to buy half of cell phone operator Iusacell and take on Carlos Slim in the Mexican mobile market.

Televisa will take a 50 percent stake in Iusacell by purchasing convertible debt, the company said in a filing with the Mexican stock exchange on Thursday.

The deal would give Televisa, which already has broadcast, cable, satellite, publishing and gaming businesses, a foothold in the mobile market dominated in Mexico by Slim, the world's richest man.

Televisa's shares (TLVACPO.MX) fell more than 4 percent in Mexico and New York on the news, extending losses that began a day earlier when the Wall Street Journal first reported the deal was in the works.

The size of the transaction could far outstrip Iusacell's total value, which Deutsche Bank estimates at about $950 million.

"They are paying a lot of money, so that is what is hitting (the company's share price) today," said Jorge Lagunas, a portfolio manager at Interacciones.

At the same time, Televisa (TV.N) stands to reap big rewards from having direct access to a wireless network, with the broadcast of video over mobile phones considered a potentially big business.

The deal introduces a new twist in the clash between three of Mexico's richest men over control of the country's communications sector. It would appear to at least smooth over tensions between Televisa media baron Emilio Azcarraga and TV Azteca boss Ricardo Salinas, who owns Iusacell CEL.MX.

"The most important thing to watch is that we are in an unbalanced market where there is a dominant provider with monopolistic practices that is trying to kill competition," Luis Nino de Rivera, head of Banco Azteca from the Grupo Salinas Group told reporters referring to Slim companies.

"Iusacell and Televisa are joining forces (because) we are very concerned about this situation," added Nino de Rivera, a key advisor of Salinas, attending a banking gathering in Acapulco on Thursday.

Last year, Salinas tried to stop Televisa from expanding into the wireless market. Salinas' companies filed dozens of suits in Mexican courts complaining that Televisa and its then partner, NII Holdings Inc's (NIHD.O) Nextel Mexico, paid too low a price for wireless spectrum. Eventually, those claims contributed to Televisa and Nextel Mexico parting ways.

But in 2011, both Televisa and TV Azteca stopped running advertisements for companies controlled by Slim, who owns fixed line telephone provider Telmex (TELMEXL.MX) and telecommunications giant America Movil (AMXL.MX)(AMX.N).

While Televisa wants to enter the wireless business, Slim wants to expand into television in Mexico so his companies can offer bundled packages of video, telephone and Internet services, as he does in 16 countries where America Movil operates.

Mexican regulators have so far barred his entry.

Slim is the main provider of pay television in Latin America with around 11 million subscribers. Mexico and Argentina are the only countries where he has not been able to move into this market. (Additional reporting Cyntia Barrera Diaz and Jean Luis Arce; editing by Andre Grenon)