Talk of a takeover of Sprint Nextel by Deutsche Telekom sent the German company's shares down 1.4 percent and boosted the U.S. mobile operator's stock by 11 percent in pre-market trade on Monday.

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 were down 1.5 percent at 9.39 euros by 1155 GMT on Monday but shares in Sprint rose 11 percent to $4.18 in pre-U.S. market trading.

On the surface, we believe a Sprint/T-Mobile combination makes strategic sense as both companies have been losing market share and a merger would remove a competitor, said Michael Nelson at Soleil/Nelson Alpha research.

But he said a merger between Sprint and T-Mobile would also carry significant integration risk because of different network technologies and could face regulatory hurdles.

A combined Sprint/T-Mobile would surpass AT&T with over 82 million subscribers, representing roughly a 30 percent market share of the US wireless industry, Nelson said.

Sprint shares currently trade at 4.2 times estimated 2010 EBITDA, Nelson said. We believe if Sprint were to be acquired, the board would require a premium valuation in the neighborhood of five (times estimated) 2010 EBITDA, which would equate to roughly $5.50 (per) share.

Heino Ruland from Ruland Research said considering the financial situation of (Deutsche Telekom) i.e. net debt of some 51 billion euros ($74 billion), a capital raising effort would be required in the 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 timespan needed to return the U.S. peer to profitability, Ruland added.

Britain's Sunday Telegraph newspaper said 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 euros)

(Reporting by Nicola Leske and Christoph Steitz in Frankfurt; Additional reporting by Sinead Carew in New York; Editing by Greg Mahlich)