UPDATE 2-Sprint declines Clearwire convertible offer

* Lets deadline pass for $760mln convertible debt purchase

* Clearwire still pursuing other options

* Clearwire needs billions in new funding

* Clearwire shares up 0.5 pct, Sprint up 4.7 pct (Adds Clearwire comment, updates share price)

NEW YORK, Jan 3 (Reuters) - Sprint Nextel S.N let a Jan. 2 deadline pass without exercising its right to buy $760 million of Clearwire Corp CLWR.O convertible debt, ruling out that source of funding for Clearwire.

Sprint, which owns about 54 percent of Clearwire and uses its network to offer high-speed services, confirmed on Monday that it had opted to not exercise the right but Sprint spokeswoman Cristi Allen declined further comment.

Clearwire needs to raise billions of dollars in funding in order to complete a high-speed wireless network it is building to compete with much bigger rivals such as Verizon Wireless, a venture of Verizon Communications VZ.N and Vodafone Group Plc VOD.L.

Clearwire has said that other options for new funding could come from the sale of up to $2 billion of wireless spectrum or from an equity investment from a company such as Sprint or T-Mobile USA, a unit of Deutsche Telekom DTEGn.DE.

It previously said it aimed to be able to announce new funding around the end of 2010.

Relations between Sprint and Clearwire have deteriorated in the last year over disagreements about Clearwire’s pursuit of a direct retail strategy and the wholesale rates it charges Sprint.

But Clearwire said in an emailed statement that it had been expecting the Sprint decision to decline the convertible and that it still maintained a productive relationship with Sprint.

It said it is still pursuing other options such as an asset sale or an equity investment but gave no details.

Clearwire shares rose 4 cents to $5.19 on Nasdaq at mid-afternoon. Sprint climbed 20 cents, or 5.2 percent, to $4.45 on the New York Stock Exchange. (Reporting by Sinead Carew; Editing by Derek Caney and Richard Chang)