ANTIQUES SHOPS

* France Telecom SA is keen to get back on the acquisition trail in Europe but has ruled out a merger with German rival Deutsche Telekom AG, its chief executive said in an interview published in the Financial Times website.

* Speciality chemicals maker TPC Group Inc is in exclusive discussions to go private for about $600 million, Bloomberg reported on Wednesday, citing people familiar with the matter.

* Malaysian Airline System Bhd may revisit a joint venture plan with Australia's Qantas as part of its strategy to boost interlining revenue by over 40 percent, as it becomes an official member of OneWorld Alliance in 2013, the Edge reported.

* A consortium of companies owned by Li Ka-shing, the richest person in Asia, agreed to buy MGN Gas Networks of Britain for 645 million pounds ($998.03 million), as Li's corporate empire continued to broaden its already large global footprint in the energy sector, the New York Times reported.

* MGM Holdings Inc, the parent of film studio Metro-Goldwyn-Mayer Inc, is planning a possible public stock offering, the company said in a brief statement, offering few details about what it called a "confidential" filing with the Securities and Exchange Commission, reported the Wall Street Journal.

* Japanese trading giant Marubeni is expected to finalise by September a deal to buy a 20 percent stake in water concessionaire Maynilad Water Services Inc for about $400 million, the Philippine Daily Inquirer reported.

* The spat between Unitech Ltd and Norway's Telenor ASA has escalated with the former blocking a proposed rights issue by Uninor, the Business Line reported. Unitech has written to the foreign investment promotion board that its nominees on Uninor's board had not given their consent for the rights issue, the report said.

By James Saft

July 26 (Reuters) - It doesn't get much worse than a state like, say, Spain, borrowing money through a lottery.

Well, maybe actually it does, as Spain's state-owned lottery is seeking a 6 billion euro ($7.3 billion) loan from a syndicate of international lenders to fund its contribution to a bailout pot for cash-strapped regional governments.

That's right, Spain's solution to its debt problem is leveraging up its lottery. The only thing that would make this scheme more emblematic of Spain's desperation is if the plan was to plow the 6 billion euros back into tickets for the annual Christmas draw -- El Gordo -- and live happily ever after on the winnings.

Instead, Spain's Sociedad Estatal Loterias y Apuestas del Estado, SA (SELAE) is contributing to an 18-billion-euro fund which will be available to provide emergency funding to hard-hit regional governments. The Spanish treasury is supplying the remaining 12 billion euros. The fund, announced two weeks ago, already has one supplicant, the region of Valencia which on Friday asked for aid of 3.5 billion euros. Catalonia is mulling making an application, as assuredly are many other regions, which have struggled as the economy slumped and development flat-lined.

Spanish regional governments face re-financing needs between now and the end of the year which are almost the size of the entire fund, calling into question whether even lottery money will be enough.

This is the same country which brought you the ban on short selling, announced on Monday and likely to be as ineffective as bans in years past.

Spanish regional debt has more than doubled since 2008, and now is equal to about 13 percent of GDP.

Already in receipt of a proposed banking bailout, speculation has been rising that Spain will need a full-blow rescue from its European and international partners. This has driven Spanish borrowing rates to unsustainable levels, with 10-year yields on Wednesday at 7.38 percent, slightly below all-time highs set early in the week.

In March Spain was able to sell six-month Treasury paper at a yield of under 1 percent. Tuesday it had to pay 3.69 percent.

LEVERAGED AUSTERITY

Spain considered and then shelved last September a public stock offering of SELAE, after market conditions deteriorated. While it is hard to predict how well subscribed the loan will be, it must be said to carry some very particular risks. Lotteries are essentially state-licensed money printing machines, and while we don't know the exact pledges Spain has or may make about SELAE's exclusive rights to hold lotteries, we do know that Spain is desperate for money and may well be more so in a year or two. And, of course, there is always the risk that a loan made in euros becomes redenominated into new pesetas should the worst happen and Spain leave the euro.

And, of course, any region which taps the fund must make cuts in spending to allow it to repay it, a measure which will only deepen the savage contraction. On top of that they must give up future tax receipts.

This is the real madness of Spain's policy -- it is looking for any leverage it can obtain, but at the same time following a totally counterproductive policy of austerity. Spain, like Greece, needs either hugely subsidized loans from Germany and the EU or, better yet, needs to see some of its debts simply vaporized. Europe and the ECB's current policy will only bring on deflation and shrinking GDP, both of which will make the un-payable debts all the more a lost cause.

That's really what financial markets are telling you when they hike Spain's borrowing costs.

Spain itself is predicting a half-percent contraction in 2013, a probably overly optimistic assessment. Government spending excluding interest payments will be 6.6 percent below the ceiling for this year, the government said last week. Included in those cuts is a 12 percent cut in funds for central government which suffered similar cuts just three months ago.

To be fair, the lottery is an asset and Spain, as the grantor of its license, has a right to the lion's share of the proceeds. And indeed lotteries are supposed to be counter-cyclical, enjoying heightened popularity during tough times.

The whole approach, though, is wrong. Spain doesn't need more debt, even if it is off-balance sheet. It needs less. It doesn't need more spending cuts, it needs spending restored, at least until the death spiral can be arrested.

European Central Bank Governing Council member Ewald Nowotny said there are arguments for giving Europe's permanent rescue fund a banking licence, an idea that the ECB has rejected so far. A banking licence would boost the fund's firepower by allowing it access to cheap ECB funding.

Borrowing costs in Spain, which is facing snowballing regional debts and a banking sector struggling to clean up bad loans, retreated slightly on Wednesday. Safe-haven U.S. Treasury yields also inched up from historic lows as worries about the euro crisis eased somewhat.

Risk assets plummeted over the past week as concerns intensified that Spain, the euro zone's fourth-largest economy, might need to seek a full bailout, which would threaten to deplete Europe's rescue fund just when other highly indebted states were fighting to fend off surging borrowing costs.

"The slight pull-back in euro zone borrowing costs fed some relief, giving investors an impetus to hunt for cheapened stocks as Asian equities have been oversold in terms of valuations," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

"Caution will prevail as long as the European woes simmer and defensive sectors such as telecommunication and consumer goods will outperform growth-sensitive sectors, but Asia's relative cheapness has been widening since around May," he said.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.6 percent, after falling the last four sessions. The index hit a one-month low of 397.44 on Wednesday, but despite daily swings, its downside has been recovering from 2012 lows of 379.17 hit in early June.

Korean shares rose 0.5 percent after hitting their lows for the year on Wednesday and Shanghai shares also managed a 0.2 percent gain after closing at their lowest since March 2009 on Wednesday. Japan's Nikkei inched up 0.3 percent after touching a seven-week low on Wednesday.

Data showing new U.S. home sales posted their biggest drop in over a year in June and prices resumed their downward trend reinforced views the U.S. Federal Reserve would consider more easing steps to underpin a delicate recovery.

"The market will remain pressured until U.S. and European policymakers are given a chance to address the problems in their policy meetings starting later this month, which could set the market on a recovery path" Ham Sung-sik, an analyst at Daishin Securities.

SCEPTICISM PRESSURES EURO

The euro eased 0.1 percent to $1.2140 after rising against the dollar for the first time in six days on Wednesday.

It was off a 25-month low of $1.2042 hit on Tuesday but also below a peak on Wednesday of $1.21705. Against the yen, the euro traded at 94.87 yen, still near a low of 94.12 yen touched on Tuesday, its weakest since November 2000.

The dollar held steady against the yen above 78 yen.

"The fact is the ECB is still quite divided on the issue of giving the ESM a banking license," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong, referring to the euro zone's rescue fund.

"I think if anything, any bounce that this has induced would be short-lived. I don't see the euro sustaining gains."

Data released on Wednesday underscored the damage the three-year debt crisis has inflicted on Europe's economic activity.

German business sentiment dropped in July for a third straight month to its lowest level in more than two years, according to the latest survey by the Munich-based Ifo think tank, while British economic output shrank much more than expected in the second quarter, official data showed.

The top 10 U.S. prime money market funds reduced their euro zone debt holdings to 8 percent of their combined assets in June, the lowest level since 2006 as concerns over Spain intensified, Fitch Ratings said in a report on Wednesday.

A general easing in risk aversion helped to improve Asian credit markets, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by 2 basis points.

(Additional reporting by Joonhee Yu in Seoul and Masayuki Kitano in Singapore Editing by Edmund Klamann and Michael Perry)