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The Financial Times cited unidentified sources as saying O2 would be the first European mobile operator to reach an agreement with Apple for iPhone in one of the industry's most sought after deals in years.

The Times, without citing sources, said the final contract was expected to be signed imminently.

An O2 spokesman had no immediate comment.

Apple began selling the

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iPhone, which combines a wireless phone with music and video playing capabilities and web browsing, in the US on Friday in the most highly anticipated technology product launch so far this year.

The phone is expected to go on sale in parts of Europe, including the UK, this autumn and to be rolled out more extensively next year, when it will also be launched in Asia.

A deal with Apple would be a big boost for Telefonica, which bought O2 for 17.7 billion pounds ($35.7 billion) in 2005 and would be a blow to British rival Vodafone, which had hoped to get the contract.

O2 is the biggest mobile operator in Britain in terms of subscriber numbers with around 18 million customers, but it trails Vodafone in terms of revenue market share.

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