FRANKFURT, Sept 14 (Reuters) - Shares in Germany's Deutsche Telekom fell 1.3 percent on Monday after a report that the telecoms group was mulling a bid for U.S. rival Sprint Nextel.
Such a deal would vault Deutsche Telekom's T-Mobile USA unit past market leaders AT&T and Verizon to the number one spot but would cost billions of euros to pull off.
"(The) Market won't like Deutsche Telekom spending billions for a takeover now," a Frankfurt-listed trader said.
Shares in Deutsche Telekom fell 1.3 percent to 9.41 euros by 0756 GMT and were one of the sharpest decliners among German largecaps.
Heino Ruland from Ruland Research said "considering the financial situation of (Deutsche Telekom) i.e. net debt of some 51.0 billion euros ($74.1 billion), a capital raising effort would be required in case of a bid taking place."
"Even though strategically it would be the best move forward since quite some time (for Deutsche Telekom), it will weigh on the share price firstly because of that potential capital raising effort but secondly because of the time span needed to return the U.S. peer to profitability," Ruland added.
Britain's Sunday Telegraph newspaper reported that Deutsche Telekom had appointed Deutsche Bank to advise on a possible run at Sprint, valued at $11 billion.
A spokesperson at Deutsche Telekom had declined to comment.
Speculation about a possible purchase of Sprint Nextel has circulated ever since the U.S. company announced a large goodwill writeoff in February 2008 which sent its shares to a five-year low at the time.
Deutsche Telekom slashed its full-year profit forecast in April, partly due to a weak performance in the United States.
The German incumbent last week agreed a deal with France Telecom to combine the two companies' British mobile phone businesses -- T-Mobile UK and Orange. ($1=.6879 Euro) (Reporting by Nicola Leske and Christoph Steitz; Editing by Jon Loades-Carter)