UPDATE 2-Nortel in talks on potential takeovers - CEO

(Adds comments on potential targets, updates stock price; In U.S. dollars unless noted)

By Wojtek Dabrowski

TORONTO, Aug 2 (Reuters) - Nortel Networks Corp. (NT.TO) NT.N has begun talks with potential takeover targets as North America's biggest maker of telephone equipment looks to expand its reach, its chief executive said on Thursday.

"We are doing lots of analysis internally on how to grow the company organically and we started discussions recently with companies that we believe can be adding to our growth trajectory," Mike Zafirovski told Reuters in an interview.

"We're confident that we'll be able to successfully integrate other activities if the pricing is appropriate," he said.

He provided few details on the size or scope of any acquisitions that the Toronto-based company might be pursuing.

Zafirovski has said he is comfortable growing Nortel by acquisitions.

The company has recently been focusing on a turnaround, during a time when competitors have consolidated. That has prompted some analysts to speculate that Nortel may have to do the same to compete effectively.

In May, reports emerged that Nortel had been in talks to take over U.S. communications equipment maker Avaya Inc. AV.N. But no deal has materialized.

And last month, UBS analyst Nikos Theodosopoulos wrote in a note to clients that Nortel could look for acquisitions in areas like enterprise, carrier voice over Internet protocol and Internet-based video.

Taking into account factors such as Nortel's sagging stock price and its net debt position, Theodosopoulos wrote the company would likely have to look at companies with market capitalizations of less than $2 billion to $3 billion.

He named 3Com Corp. (COMS.O), Sonus Networks (SONS.O) and Tellabs (TLAB.O) as among potential targets.

Nortel shares were down C$1.48, or 6.5 percent, at C$21.44 on the Toronto Stock Exchange. In New York, they fell $1.35 to $20.39.

Nortel also said it swung to a second-quarter loss as lower than expected sales and restructuring charges and other one-time charges dragged on its results.

($1=$1.05 Canadian)