Industry sources said France Telecom's talks to buy Orange from Vodafone AirTouch Plc were "progressing," and barring last-minute hitches, the French giant would announce the deal on Tuesday morning.

"We're all on course for tomorrow," said one source close to the talks, which appear to have begun in earnest a week ago, adding that a deal looked set to be signed later on Monday.

But another source cautioned: "It's tense. But then I have never seen a deal at this stage that is not tense. The question is under what sort of structure (a deal will be struck)...Both sides are being hard-nosed.

"I'm Tired, but reasonably confident."France Telecom is expected to pay around 20 billion euros incash, 20 billion euros in stock and take on Orange's 2.5 billion pounds ($3.69 billion) of debt plus the 4.1 billion pounds Orange is paying for a new-generation British mobile licence.

It then plans to roll Orange into its cellphone businesses, including its leading Itineris domestic brand, and spin off a new mobile group which, with around 20 million customers, looks set to rank alongside Deutsche Telekom, and behind giants Vodafone and Telecom Italia Mobile.

Although final details are still being hammered out and regulators have yet to bless the deal, it is likely to leave Vodafone - the world's biggest mobile phone company - with a holding of around 10 percent in non-voting France Telecom stock.

Stripping out the price Orange paid for a coveted broadband UMTS (Universal Mobile Telecommunications System) mobile licence in April, the French appear prepared to pay around 33 percent more for Orange than Germany's Mannesmann paid last October. Mannesmann, which was in February snapped up by Vodafone, paid around 20 billion pounds for Orange at that time and saw its shares dive amid shareholder accusations it had overpaid.

But despite a recent sharp correction in global telecoms shares, European telecoms stocks are still trading at a premium to US peers on hopes of fat returns from a new generation of high-speed data services on mobile phones.And Vodafone's sale of Orange - demanded by regulatorsbefore they approved its Mannesmann deal - has triggered much rival bid interest.

As France Telecom's shares hovered around their Friday close of 141.8 euros, analysts said the French giant - which is keen to stake out a leading position in a fast-consolidating market - had to pay up to keep up.