UPDATE 1-Investors look to launch bid for Nortel -source

(Updates to recast lead with source, adds background)

NEW YORK, July 5 (Reuters) - MatlinPatterson Global Advisors, a private equity firm specialising in distressed investments, is considering leading a rescue bid for the whole of Nortel Networks (NRTLQ.PK), a source familiar with the situation said on Sunday.

The New York-based company is trying to put together a consortium of investors to fund a recapitalisation of the Canadian company, the Financial Times earlier reported, citing people familiar with the situation.

Any rescue bid would require a debt-for-equity swap and would need to be tabled by July 24, the date set by the bankruptcy courts to consider the $650 million "stalking horse" bid by Nokia Siemens Networks for most of Nortel's core and profitable wireless equipment operations, the paper said.

The source who spoke to Reuters could not be identified because they were not authorised to speak to the media.

Toronto-based Nortel, once the largest North American telecommunications equipment manufacturer, filed for bankruptcy protection in Canada and the United States in January, blaming the economic crisis for derailing a turnaround effort that began in 2005.

Nokia Siemens Networks -- a joint venture of Nokia (NOK1V.HE) and Siemens (SIEGn.DE) -- struck a deal last month to buy Nortel's advanced wireless technology business for $650 million.

But creditors and suppliers of Nortel filed a series of objections to that sale.

MatlinPatterson, a major bondholder and Nortel creditor, said at the time that restrictive conditions imposed by the current bidding process may prevent, rather than promote, a valid competing bid to emerge for the unit, which makes advanced wireless technology.

In a bankruptcy case, when debtors lack the ability to repay creditors, the creditors have the option either to break up the company and monetize the assets, or to run the company as a going concern and take equity in lieu of their claims.

MatlinPatterson argued that the current bidding process failed to pay sufficient attention to the "going concern" option. The firm said it had begun preliminary discussions with other creditors and was considering supporting a Chapter 11 reorganization plan in the United States, in lieu of the proposed sale.

MatlinPatterson could not immediately be reached for comment on the Financial Times story. (Editing by Matthew Lewis and Lincoln Feast)