UPDATE 1-Ambani share dispute deepens on arbitration move

(Recasts, adds details, Reliance Comm and analyst comment)

By Rina Chandran

MUMBAI, July 17 (Reuters) - A feud between India's billionaire Ambani brothers escalated on Thursday with older sibling Mukesh starting arbitration proceedings over a claim on share rights in a move likely to further complicate his brother's talks with South Africa's MTN Group (MTNJ.J: Quote, Profile, Research, Stock Buzz).

Reliance Communications, India's No. 2 mobile carrier controlled by younger brother Anil Ambani, has been in exclusive discussions with MTN since late May to forge a global top-10 mobile phone carrier.

But the share ownership dispute between the estranged brothers has cast a shadow on the deal. The talks with MTN, which have been extended once, are scheduled to end on July 21.

Analysts were divided whether the latest move by Mukesh Ambani made a Reliance Communications deal with MTN more or less likely.

"I still believe the deal will go through. I don't know whether they will extend the date again ... but what I gather is there is interest on both sides, which is becoming clearer from recent developments," said Aman Bajaj, managing director at advisory firm Nine Capital.

But Mahesh Uppal, director at telecoms consulting firm Com First in New Delhi, was less optimistic.

"My own sense is the deal is slipping. I have no insider knowledge but I feel it's too difficult a deal to clinch," he said.