Shares of Apple Inc
Shares of Verizon rose 2.6 percent and Apple's were up 1.5 percent, while AT&T stock fell 2.1 percent.
Shares of rival smartphone makers also fell, including Research in Motion
The Wall Street Journal reported that Apple appears to be working on a CDMA iPhone for Verizon, and a source told Reuters that Pegatron, a subsidiary of Taiwan's Asustek <2357.TW>, has won orders to manufacture a CDMA iPhone, though it was unclear whether the iPhone would be for Verizon's network since Sprint Nextel Corp
Pegatron will begin shipping the devices from next year, the source said.
Piper Jaffray analyst Chris Larsen said he expects Apple to build an iPhone for a 2011 release that is compatible with both CDMA and Long Term Evolution, the advanced, high-speed network that Verizon is building out.
Verizon has said it expects LTE to cover as many as 100 million people by the end of 2010.
Larsen said a Verizon iPhone deal would cost AT&T about 1 million to 2 million customers over the next one to two years but said: I don't think you'll see a flood of people leaving AT&T for Verizon.
Hudson Square Research analyst Todd Rethemeier said the iPhone would certainly help Verizon Wireless grow its market share in postpaid subscribers, who pay monthly bills, but the near-term downside for AT&T is not so bad because a large number of its iPhone users are under a two-year contract and would be reluctant to pay a termination fee to switch.
Analysts have long expected Apple and Verizon Wireless to reach a deal on the iPhone.
It was always a matter of when, not if, said Rethemeier. From Apple's perspective, they want as many people selling it as they can.
IPHONE RIVALS HURT
Verizon has roughly 6 million more wireless customers than AT&T, and Verizon offers phones from many of the iPhone's rivals, including the BlackBerry, Droid, and Pre and Pixi.
Pacific Crest Securities analysts Steve Clement said a Verizon iPhone would hurt sales of competing smartphones on that network.
It certainly doesn't help them, and it broadens the opportunity for Apple relative to those other devices, Clement said.
Clement said a Verizon iPhone would eat into AT&T's customer base -- more than a trickle, but less than a flood.
Apple has released a new iPhone model every summer for the past three years, and is widely expected to do so this summer, but analysts are not predicting a CDMA device at that time.
The exact timing of a Verizon iPhone is still the subject of debate.
Credit Suisse analyst Bill Shope doesn't expect Apple to launch an iPhone with Verizon until the second half of 2011.
Broadpoint Amtech analyst Brian Marshall predicts a Verizon iPhone in early 2011, and said it could sell as many at 14 million units that year.
AT&T heavily subsidizes iPhone purchases, but Pacific Crest's Clement said it was unclear whether Verizon would offer a similarly rich offer.
But he noted that in countries with more than one iPhone carrier, Apple is able to extract subsidies from multiple network providers.
Verizon shares climbed 78 cents, or 2.6 percent, to close at $31.23 on the New York Stock Exchange. Shares of Apple added $3.44, or 1.5 percent, at $235.83 on Nasdaq. Shares of AT&T fell 56 cents, or 2.1 percent, to $25.95 on the NYSE.
Blackberry maker Research in Motion lost 1.3 percent while Pre and Pixi maker Palm fell 3.6 percent. Motorola, which makes the Droid, edged down 3 cents, or 0.4 percent.
(Reporting by Gabriel Madway and Paul Thomasch, editing by Maureen Bavdek, Gary Hill)