* Enel eyeing capital hike as option
* Newspaper says could be 5-7 billion euros
* Fitch says would be step in right direction for rating
(Adds comment from Fitch analyst; updates shares)
By Stephen Jewkes
MILAN, Feb 27 Italy's Enel SpA said on Friday it was studying a possible capital increase, after a newspaper said it was planning an increase of 5 billion to 7 billion euros ($6.36-$8.90 billion) to maintain its sector-beating dividend.
Enel (ENEI.MI), Europe's third-biggest power company by market value, is currently trying to reduce a debt of about 61 billion euros.
Enel's debt, including 11 billion euros for raising its stake in Spain's Endesa SA (ELE.MC) to 92 percent last week, has raised questions among investors about whether Enel could maintain both its dividend and its single "A" credit rating.
"I think it would be a step in the right direction to maintain a single 'A' rating," said Francesca Fraulo, a utilities analyst at Fitch ratings agency.
The hike would be an alternative to selling assets, which would cause Enel to lose cash flow when asset prices are depressed.
Enel said in a two-sentence statement that a capital increase was "among options now under study aimed at supporting international growth achieved with the purchase of Endesa".
The board has not expressed its opinion on the options, the company said.
Il Sole 24 Ore, Italy's leading business newspaper, said state-controlled export credit agency SACE would underwrite the part of the capital increase reserved for the state. Enel is more than 30 percent state controlled.
The paper, which did not cite any sources in its report, said government holding Fintecna could also be involved.
SACE would end up with a stake of 5 percent to 7 percent, while the stake of the Treasury and Cassa Depositi e Prestiti, a state finance company, would fall to between 23 percent and 25 percent, the paper said.
Economic Development Minister Claudio Scajola and a SACE spokesman had no comment.
The deal will be decided upon in the next two weeks, ahead of Enel's strategy presentation on March 12, Il Sole 24 Ore said.
The shares were down 7.58 percent at 3.93 euros at 1415 GMT while the DJ Stoxx utilities index .SX6P was off 2.75 percent. The stock hit a record low of 3.8575 euros in the morning.
Chief Executive Fulvio Conti has committed Enel to a dividend of 0.49 euro per share despite the debt mountain. Its dividend yield of 11.52 percent trails only Endesa among the European power companies and is more than twice the sector average.
Enel raised its stake in Endesa last week by buying a 25 percent holding from Spanish partner Acciona SA (ANA.MC). Enel had debt of about 50 billion euros at the end of 2008.
A London-based analyst said: "We think a capital increase is enough (for Enel) to hang on to its single 'A' rating and meet its refinancing obligations in 2010."
Italian investment bank Mediobanca SpA (MDBI.MI) could be the adviser for the operation, Il Sole said.
The newspaper also said Enel would announce the sale of 70 percent of its gas distribution asset Enel Rete Gas at the business plan presentation in March. ($1=.7865 Euro) (Additional reporting by Nigel Tutt in Milan and Giuseppe Fonte in Rome; writing by Ian Simpson; editing by Karen Foster)