* Telefonica bid for GVT may force Telecom Italia to react
* T.Italia CEO says won't make "crazy" acquisitions in Brazil
* Possible deal with GVT, sale of TIM Brasil remain options
* Shareholder Fossati calls for GVT/TIM Brasil merger (add shareholder calling for GVT/TIM merger, shares)
By Danilo Masoni and Stefano Rebaudo
MILAN, Aug 6 (Reuters) - Italy's biggest phone company Telecom Italia said on Wednesday it was considering all its options in Brazil, including the possibility of an acquisition that would rival its top investor Telefonica .
On Tuesday, Spain's Telefonica made a surprise 6.7 billion euro ($9 billion) bid for Vivendi's Brazilian broadband unit GVT. The Italian firm, meanwhile, has not ruled out the possibility of merging GVT with its own TIM Brasil to bolster its broadband base.
Brazil accounts for about one-third of Telecom Italia's revenues. In spite of a recent economic slowdown, the market in the Latin American country continues to be its main engine for growth as Italy struggles to emerge from a long recession.
Weighed down by a heavy debt pile and the need to make costly network upgrades, Telecom Italia has refrained from making the first move in the consolidating Brazilian market, but Telefonica's offer for GVT could force it to react.
Telecom Italia Chief Executive Marco Patuano said he was open to all options for its Brazilian unit, including a tie-up with GVT, but cautioned that the heavily indebted company would not make what he termed as a "crazy" acquisition there.
"We keep all options open, but we are not interested in anything that could be irrational," Patuano, who is carrying out a strategic review of asset sales and innovative investments, told analysts during a conference call on Wednesday.
Shares in Telecom Italia closed down 2.6 percent at 0.8035 euros in a lower Italian market on Thursday.
Shareholder Marco Fossati, Telecom Italia's second-biggest shareholders with a 5 percent stake, said on Wednesday Telecom Italia should merge TIM Brasil with GVT and forge an alliance with Vivendi.
"Such a plan would be more beneficial in the medium and long term for Vivendi than a sale that would see it cut out from a high-potential market such as Brazil," Fossati said.
If the Italian group decides to launch a counter bid for GVT, that would force it to seek a capital increase.
A tie-up between TIM Brasil and GVT would heighten Telecom Italia's rivalry with Telefonica in Brazil by creating a stronger competitor to Telefonica's local unit Vivo.
On the other hand, if Telefonica's bid succeeds, TIM Brasil would lose a major strategic option, and its position would be weakened because it would remain the only mobile operator in Brazil without a large broadband business.
It remains to be seen whether mobile consolidation would still occur in Brazil. Telefonica has been seeking to engineer a joint bid for TIM Brasil with America Movil and Grupo Oi to cope with a regulatory ruling.
Patuano said TIM Brasil was a strategic asset for the group, but he would consider selling it if Telecom Italia received an offer at a high price.
Telefonica has a 14.8 percent stake in Telecom Italia but has recently taken steps to reduce that holding under pressure from Brazilian antitrust authorities, because it controls Vivo, the No. 1 mobile operator in the Latin American country, as well as holding a significant indirect stake in rival TIM Brasil.
As part of its offer for GVT, Telefonica has given Vivendi the option to take 8.3 percent of Telecom Italia, paving the way for an exit from the Italian group after seven years.
Vivendi said none of its units were for sale but it would consider Telefonica's offer at a board meeting in late August.
Telecom Italia's comments on Brazil accompanied a broadly in-line set of first-half results.
Core profit fell 7.6 percent to 4.3 billion euros ($5.8 billion), as a weak economy in its domestic market and the slowdown in Brazil weighed on sales.
The company said price competition in the Italian mobile business had eased and confirmed expectations of a gradual recovery of its operating performance in Italy in 2014. (1 US dollar = 0.7480 euro) (Additional reporting by Lisa Jucca, editing by Jason Neely, Jane Baird and David Evans)