UPDATE 2-France Telecom says big M&A impossible at present

* CEO says debt ratio target will be 'set in stone'

* Says big M&A deals "frozen" for up to 18 mths

* Continues to seek smaller deals in emerging markets

* Shares down 0.36 percent

(Adds quotes, background, reaction to press report)

By Matt Gil

PARIS, Jan 14 (Reuters) - France Telecom (FTE.PA), often mentioned as a possible major predator in the telecoms sector, considers big merger and acquisition (M&A) deals "impossible" for at least a year in the current financial markets. "Do you think that in the current state of the markets you are capable of doing a big deal? It is impossible," Chief Executive Didier Lombard told journalists at a presentation on Wednesday. "The (big M&A news) is frozen for the next year, year and a half," he added.

Last year France's leading telecoms group, which trades mainly as Orange, failed to clinch a $40 billion takeover of Nordic operator TeliaSonera (TLSN.ST) but said it remained in favour of consolidation in the European telecoms market.

Asked about TeliaSonera, Lombard said: "All these fantasies that we are going to do something there again are totally out of the question."

But while there was a "very marked pause" in major M&A activity, "the small deals will carry on" and the group still sought targets in high-growth emerging markets, notably in Africa, he said.

Separately, a France Telecom spokesman said he had no comment to make on a report in Swiss weekly Cash, claiming the group is considering a 3 billion euros to 4 billion euros ($3.98 billion to $5.30 billion) takeover bid for Swiss operator Sunrise, a unit of Denmark's TDC AS (TDC.CO).

"This is a market rumour and we make no comment," he said.

Cash cited unnamed sources as saying France Telecom made a takeover approach for Sunrise in 2008 that was rejected as too low and that it would now face competition from German peer Deutsche Telekom (DTEGn.DE).

France Telecom stock was trading 0.36 percent lower at 19.27 euros at 1233 GMT, while the DJ Stoxx telecom index .SXKP was down 0.54 percent.

DEBT CEILING SET IN STONE

Asked if the company's net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) target would be eased if a major acquisition presented itself, Lombard said it would be "set in stone" as part of a new three-year plan due to be unveiled alongside annual results on March 4.

Under its previous three-year plan, the company targeted a ratio of less than two times net debt to EBITDA by the end of 2008 and reached this at the end of 2007, when it stood at 1.99 times down from 2.48 at end-2005.

Asked about France Telecom's cash strategy, Lombard said: "Right now, any situation where you do not have to ask banks for anything is the best there is. So, we are in a situation where we are not asking the banks for anything."

France Telecom generated 7.8 billion euros in free cash flow in full year 2007 and has targeted a little more than that for 2008, prompting speculation it could make a major acquisition or return cash to shareholders through a special dividend.

Some analysts believe that France Telecom could use some of the cash to buy back part of the French state's 26.65 percent stake in the group. Asked about this, Lombard said: "These questions are for results day on March 4." ($1 = 0.7547 euros) (Reporting by Matt Gil and Nathalie Meistermann; Editing by Mike Nesbit)