Madrid-based telecommunications and digital services provider Telefónica S.A. (MCE:TEF) is too important to the Spanish economy to be taken over by AT&T Inc. (NYSE:T), an anonymous government source told the Spanish daily El Mundo in a report published on Monday.

“The government stopped the operation considering that the company is ‘strategic,’” said the report (read it here in Spanish). “The decision was taken by Prime Minister Mariano Rajoy along with three of his ministers.”

The news pushed Telefónica’s share price up 3.6 percent on Monday in Madrid, the biggest gain since mid-March, though there had been no concrete evidence of any serious takeover talks for one of Spain’s largest companies by the U.S. telecommunications company.

Telefónica denies there was ever any “spoken or written indication of interest” of a takeover, a company representative in Madrid told Reuters.

That takeover would've created a large global telecommunications company with major investments in Europe and Latin America, and it would have positioned AT&T as a major global telecom. El Mundo reported that AT&T offered $93.4 billion and under the deal would've agreed to accept Telefónica’s $69.4 billion in debt.

AT&T has expressed interest in expanding its global presence in recent months, and a takeover of debt-ridden Telefónica that has been pummeled by Europe’s sovereign debt crisis would be an obvious target, considering its strong presence in Latin American emerging markets.

The rumors of a possible takeover likely come from a meeting at the Mobile World Congress in Barcelona in February between Spanish Industry Minister Jose Manuel Soria and AT&T Chairman, President and CEO Randall Stephenson.

Soria said in a televised interview in Spain on Monday that Stephenson only said AT&T was interested in making investments in Europe, but that he never specifically mentioned Telefónica.

“A potential takeover by AT&T wouldn’t be totally crazy … however, the deal would just be very unlikely because the government can’t afford to lose such an emblematic and strategic asset,” Banco de Sabadell SA (MCE:SAB) analyst Andres Bolumburu told Bloomberg.