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(Recasts, adds Vivendi comment, shares)
By Emilio Parodi
MILAN, Feb 24 (Reuters) - Italian prosecutors are investigating French tycoon Vincent Bollore for alleged market manipulation when the company he chairs, Vivendi, bought a stake in Italian broadcaster Mediaset, a source said on Friday.
The probe will dampen speculation that the Berlusconis and Bollore are about to end a dispute that began last July when Vivendi abandoned a deal to buy Mediaset's pay-TV unit.
Hopes of an end to the hostility were raised when Vivendi CEO Arnaud de Puyfontaine, also being investigated according to the source, said on Thursday his company was still open to building a "strong business relationship" with Mediaset.
Vivendi confirmed some of its executives were being investigated, but did not name them.
In Italy, investigations do not imply guilt and do not necessarily mean charges will be laid.
At 1450 GMT Mediaset shares were down 2.4 percent while Vivendi shares were 4 percent lower after it reported a sharp fall in profits late on Thursday.
Mediaset has accused Vivendi of never intending to honour the deal to buy its pay-TV unit and tearing it up with the aim of driving down Mediaset's share price to raid its stock.
Vivendi questioned the pay-TV unit's profit forecasts when it ditched the deal and later bought up Mediaset shares, acquiring a stake of just under 30 percent and becoming its second biggest investor after former prime minister Silvio Berlusconi's family.
It has denied Mediaset's claims.
"The registration of Vivendi executives by the Milan public prosecutor is the result of an unfounded and abusive lawsuit filed by the Berlusconis," Vivendi said in a statement.
A source familiar with the prosecutor's investigation said Bollore, Vivendi's biggest shareholder with a 20.7 percent stake, and de Puyfontaine, were being investigated under a 1998 law banning the dissemination of false news that can affect share prices.
Market manipulation carries a jail sentence of up to six years and a fine of up to 5 million euros ($5.3 million) which can be increased under certain circumstances.
Fininvest has also filed complaints against Vivendi with Italy's market and competition watchdogs.
Vivendi's aggressive stake building has riled the Italian government, which is concerned that Bollore could end up with too much influence in corporate Italy.
The tycoon, acting through Vivendi and other firms, is already the biggest shareholder in Telecom Italia and has a major stake in investment bank Mediobanca, which in turn controls Italy's biggest insurer, Generali.
Rome is drafting new corporate transparency rules to force buyers who build up significant minority stakes in Italian firms to disclose what their ultimate intentions are.
Industry minister Carlo Calenda said the rule would apply to any bids to buy 5 percent or more of a listed company and would be based on similar rules in France and the U.S.
Vivendi has denied it plans to take over Mediaset. Under Italian law, it would be required to launch a mandatory takeover offer if it were to reach a 30 percent shareholding. ($1 = 0.9443 euros) (Additional reporting by Dominique Vidalon and Mathieu Rosemain in Paris; Writing by Stephen Jewkes; Editing by Giselda Vagnoni and Elaine Hardcastle)