MADRID, Dec 20 Reuters Telefonica39;s shares rose on Wednesday, a day after the Spanish government said it would buy a stake of up to 10 in the company to counterbalance a similarsized acquisition by Saudi Arabia39;s STC.

Telefonica shares were up 3.6 at 3.70 euros at 1137 GMT, their highest since Dec. 13.

With the acquisition, Spain is sending a message to STC and other foreign funds or investors that the government will defend its strategically important companies, a source with knowledge of the deal told Reuters.

State holding company SEPI said on Tuesday it would buy the shares in a way that would minimise the impact on the market price although it did not give a timeframe.

It will issue debt to finance the acquisition and will hire a financial advisor to buy small quantities of shares over a twomonth period, the source said.

The impact on national debt is expected to be minimal and will be mitigated by the dividend Telefonica pays.

A 10 stake had a market value of around 2 billion euros 2.19 billion as of Tuesday evening. SEPI can expect to receive at least 172.5 million euros in dividend payments a year until 2026.

The move is in response to the STC announcing in September it had built a 9.9 interest in Telefonica.

Other main shareholders are Caixabank, which holds 3.5, and Criteria, Caixabank39;s main shareholder, which holds a 2.5 stake. Spain39;s BBVA also holds a 4.87 in the Spanish phone giant.

Both BBVA and Caixabank, which each have a seat on…