UPDATE 1-Russia's MegaFon not eyeing Vimpelcom stake - source

* Source denies MegaFon may buy up to 5 pct of Vimpelcom

* Analysts say such an investment would be strange

(Releads with source denying newspaper report, adds Telenor, analysts' comment, background)

By Maria Kiselyova and Joachim Dagenborg

MOSCOW/OSLO, July 3 (Reuters) - Russian cell phone service operator MegaFon has no plans to buy shares in bigger rival Vimpelcom (VIP.N: Quote, Profile, Research), a source close to MegaFon's shareholders said on Friday, denying a newspaper report.

Vimpelcom, the country's second biggest mobile operator, is 44 percent owned by Russian billionaire Mikhail Fridman's Alfa Group, which also has a 25.1 percent stake in Vimpelcom's smaller rival MegaFon, while Norwegian group Telenor (TEL.OL: Quote, Profile, Research) has a 29.9 percent stake in Vimpelcom.

"This is not true," the source said, referring to a report in business daily Kommersant which said MegaFon was considering buying up to 5 percent of Vimpelcom's shares on the open market.

The paper quoted two sources close to the mobile operators' shareholders as saying the proposal was on the agenda of MegaFon's board meeting on July 1 but that no decision was made. MegaFon declined to comment.

Telenor is at risk of losing its stake in Vimpelcom after a Siberian court awarded $1.7 billion damages against Telenor after Farimex, a tiny Vimpelcom shareholder claimed Telenor had held back Vimpelcom's business expansion in Ukraine.