STOCKS NEWS EUROPE-Sonaecom, Zon down; merger talk fade

Portugal's telecommunications company Sonaecom (SNC.LS) and Zon Multimedia (ZON.LS) fall sharply following a rally as recent talk of a merger between the two appears to fizzle out with no immediate deal on the horizon.

Sonaecom, which gained 15 percent in the week through Monday, falls 6.9 percent to 1.97 euros. Zon, which had risen 6 percent, is down 4.8 percent to 4.023 euros.

"There are no reasons for the stocks to have risen so much if there are no synergies to price in. If a merger in the short-term is ruled out, the stock prices should be adjusted lower," one trader says.

Diario Economico newspaper cites a government source as saying the state is against the merger, which it can inlfuence via an 18 percent stake in Zon onwed by the state-run bank CGD.

On Monday, the paper quoted CGD chief as saying the merger was not being currently discussed, but it remained an open issue. The rally started last Thursday after Sonae (YSO.LS) CEO Paulo Azevedo told Reuters he saw growing interest in a merger from Zon shareholders. [ID:nLL974787]

Reuters Messaging rm://andrei.khalip.reuters.com@reuters.net