UPDATE 7-France Telecom withdraws TeliaSonera offer

(Adds France Telecom finance director, updates shares)

By Astrid Wendlandt and Adam Cox

PARIS/STOCKHOLM, June 30 (Reuters) - France Telecom (FTE.PA: Quote, Profile, Research, Stock Buzz) withdrew a $40 billion plan to acquire TeliaSonera (TLSN.ST: Quote, Profile, Research, Stock Buzz) on Monday, pleasing its own shareholders but casting doubt over the Nordic operator's future.

This tie-up always faced long odds: the French suitor was restricted by its financial targets while analysts say Sweden, a big TeliaSonera shareholder, was wary of selling at too low a price for political reasons.

TeliaSonera shares dropped 12.7 percent to 43.40 crowns. Shares in France Telecom, which trades under the Orange brand, jumped 7.6 percent as investors welcomed its decision to avoid a costly deal that offered few savings.

"By pulling out, France Telecom has shown that it is not in the business of getting big at all costs," said Vincent Griffon, analyst at CM-CIC Securities.

But John Davies, analyst at Dresdner Kleinwort, said France Telecom did not suddenly have a big conversion about the deal's logic and was defeated by its inability to pay enough.

"The worry is they'll find some other deal which they can get past the people (targeted)," he said.

No sooner did France Telecom announce its withdrawal than the market begin to think it might set its sights on Dutch operator KPN (KPN.AS: Quote, Profile, Research, Stock Buzz), whose shares rose 2.5 percent.