July 19 (Bloomberg) -- Telecom Italia SpA, Italy's biggest phone operator, agreed to sell its stake in the company that controls Brasil Telecom Participacoes SA to pension funds for $515 million to cut debt.

The sale will lower debt by 354 million euros ($488 million) and bolster profit by 195 million euros, Milan-based Telecom Italia said in a statement today. The Previ, Petros and Funcef pension funds are already shareholders of Brazil's third-largest fixed-line telephone company.

``The deal should be viewed positively and the price is acceptable,'' said Alessandro Capuano, a trader with IG Markets in London.

Telecom Italia a year ago hired JPMorgan Chase & Co. to sell its 38 percent stake in Solpart Participacoes, which controls Brasil Telecom. Italy's former monopoly phone-service provider reiterated in March it planned to sell about 1 billion euros of ``non-strategic assets'' including Brasil Telecom as part of a plan to reduce borrowings.

Under the accord, the parties involved agreed ``to resolve in a transactional manner the legal disputes and arbitrations proceedings pending'' between Telecom Italia, the pension funds and other Brasil Telecom investors and drop all claims, even future ones, the Italian phone company said.

Shares of Telecom Italia rose 4 cents, or 1.8 percent, to close at 2.11 euros in Milan, giving the company a market value of 38.6 billion euros.

`Burdensome Controversies'

The sale allows Telecom Italia ``to put an end to the burdensome controversies which have plagued the investment in Brasil Telecom over the years and to focus its efforts in Brazil through subsidiary TIM Brasil,'' it said in the statement.

Telecom Italia also controls TIM Brasil, the country's second-biggest mobile-phone company.

Telecom Italia's net debt was 37.2 billion euros at the end of March. The phone-service provider is seeking to cut borrowings, which surged in 2005 after it bought the remainder of its wireless unit. It aims to keep debt at less than three times annual earnings before interest, taxes, depreciation and amortization through 2009.

As part of the plan, Telecom Italia last month sold its 10.4 percent stake in Oger Telecom Ltd. to Saudi Oger Ltd. for $477 million. The sale will help reduce debt by about 470 million euros, it said at the time.

To contact the reporters on this story: Chiara Remondini in Milan at cremondini@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

Last Updated: July 19, 2007 11:52 EDT