* Chinese telecom firms face rigid regulatory scrutiny
* Huawei and domestic rival ZTE expanding rapidly overseas
* Analysts expect sector to consolidate
BEIJING, Aug 28 (Reuters) - China's Huawei has no plans to take a stake in Alcatel-Lucent, a Huawei source said on Friday, two days after the French-American telecoms equipment maker's stock jumped on market chatter a Chinese rival could acquire it.
"Huawei has no plans to take a stake in Alcatel-Lucent," said the company source, who requested anonymity because of the sensitive nature of the issue.
Alcatel-Lucent's shares rose 16 percent on Wednesday on the rumour, and a rating upgrade by Natixis.
The stock fell 5.3 percent on Thursday.
Huawei and domestic rival ZTE Corp have been expanding their operations aggressively in overseas markets, but analysts said they would face stern regulatory scrutiny.
That scrutiny derailed an attempt by Huawei and partner Bain Capital to buy U.S.-based 3Com in 2007.
"Huawei is keen to expand internationally, so I'm not surprised that this has come up, but I would be surprised if it went ahead," said Damien Bailey, a telecoms specialist at law firm Simmons & Simmons.
"There will undoubtedly be consolidation in the telecoms equipment manufacturing sector, and I think there will probably only be three or four left, with Huawei and ZTE being two of those," he said.
Besides the regulatory concerns, any deal for Alcatel-Lucent would mark a major acquisition as the 2006 merger between France's Alcatel and U.S.-based Lucent Technologies has a current market value of about $8.9 billion.
For a related analysis on rival Nokia Siemens Networks, click
Alcatel-Lucent has been struggling to turn a profit since its 2006 merger, which was supposed to help it cut costs and better compete with Chinese gear makers including Huawei and ZTE. ($=6.83 yuan) (Reporting by Kirby Chien and Doug Young; Editing by Anshuman Daga)