UPDATE 1-Prosecutor to challenge Telefonica's Alierta case

* Appeal against charge dimissal could take upto a year

* Supreme court could overturn the decision to clear Alierta

(adds background, analyst comment)

MADRID, July 22 (Reuters) - Spain's anti-corruption department will appeal against a court decision to clear Telefonica TEF.MC chairman Cesar Alierta of insider trading charges, a Madrid public prosecutor said on Wednesday.

A Madrid court on Friday concluded Alierta traded stock using insider information while chairman at tobacco company Tabacalera but dismissed criminal charges against him because too much time had elapsed, official documents showed. [ID:nLH287171]

It could take at least a year to decide whether to overturn the court decision, a court source said.

Telefonica declined to comment.

Analysts and investors said the case damages Alierta’s image, but there is no consensus on whether his chairmanship of the Spanish telecoms company may be affected.

No investors consulted by Reuters has been willing to go on the record to support the chairman or call for his resignation.

“We believe that over the medium term there may be increasing pressure for Mr. Alierta to step down, perhaps from next year (...) even if he is exonerated once again at the Supreme Court level, since the previous sentence left a shadow of a doubt by not declaring him innocent,” said a senior telecoms analyst in a note to clients. (Reporting by Robert Hetz and Elisabeth O’Leary; Editing by David Cowell)