Under the agreement, Singapore Telecom will take a 4.99-percent stake in KDD via a third-party allotment of new shares, while KDD will take a 1.43- percent stake in its Singapore partner.

"The capital alliance....will make it possible for us to ensure steady expansion of our business, especially in Asia," KDD president Tadashi Nishimoto said in a statement.

Singapore Telecom chief executive Lee Hsien Yang said the tieup would help the two keep a leading position in the Asian region amid ongoing industry-wide realignment.

The two telecom carriers also said they would set up a fifty-fifty joint venture in April next year aimed at offering full-line telecoms services to multinational corporations.

The joint venture would invest about $350 million over five years, they added.

The news of the tieup pact came after the Tokyo market closed, but expectations that a tieup announcement was imminent pushed KDD shares up nearly three percent, or 390 yen, to a close of 14,100.Singapore Telecom's share price rose 0.02 to 3.18 Singapore dollars.

KDD said earlier on Wednesday it was also in talks with other Asian telecoms carriers as well as European and U.S. Counterparts, although no decisions had yet been made.The Japanese business daily Nihon Keizai Shimbun reported that KDD hopes to reach an agreement by the end of the year on a data-communications joint venture with Qwest Communications International of the United States.

KDD, which merged with domestic phone carrier Teleway Japan in December last year, has become a focus of attention in the sector's realignment as it is relatively small compared with other global carriers and is considered urgently in need of a foreign partner to compete in the global arena.

Another factor spurring KDD to seek partners is the pending disbandment at the end of this year of international consortium World Partners, which includes both KDD and Singapore Telecom, after leading member AT&T Corp agreed to form a joint venture with British Telecommunications PlcKDD's talks with possible partners have dragged on partly because the carrier, a proud, formerly state-run company, is determined not to be swallowed up by global giants and has insisted on a deal based on equal footing, industry observers said.

But time may be running out. Analysts say that harsh rate-cutting competition and investment in a new generation of mobile phone services are biting into phone companies' profits.

After a recent series of deregulation measures in Japan's telecoms industry, KDD lost its overwhelming dominance in the international call market and its revenues were rapidly eroded by new competitors. KDD itself entered the domestic long-distance call market last year, sparking competition to cut rates. Last month, KDD warned that its group net profit for the year to next March would be about one billion yen, or only one-third of what it had predicted in May. KDD will announce its business results for the half-year to September 30 and an updated set of full-year forecasts on November 12.