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HONG KONG, May 16 (Reuters) China Netcom Group Corp. (Hong Kong) Ltd. , the smaller of China's two fixed-line phone firms, said on Tuesday it may sell its subsidiary Asia Netcom.

''We have been trying to improve the operation of Asia Netcom, including selling it and cutting costs further, but there is no conclusion,'' Chairman Zhang Chunjiang told reporters. ''Selling is one option.'' Simon Murray, former head of telecom giant Hutchison Whampoa Ltd.

, confirmed in a Reuters interview last month that a group he is leading is close to buying Asia Netcom from China Netcom in a deal said to be worth around $350 million.

Asia Netcom, which operates undersea phone cables, consists mostly of the firm formerly known as Asia Global Crossing that Netcom bought out of insolvency for $120 million plus the assumption of unspecified liabilities in 2003.

Zhang said several companies have expressed interest in buying Asia Netcom, but declined to specify target buyers.

A source close to the matter had earlier told Reuters that China Netcom had agreed on a $350 million price with the group, which includes Murray's General Enterprise Management Services Ltd.

(GEMS), Spinnaker Capital Group and Ashmore Investment Management, which has a stake in another Asian cable firm, C2C.

Murray's group beat off three Indian finalists: VSNL , Reliance Communications and Bharti Group, the source said.

Earlier this month, China Mobile , the world's top cellular carrier by subscribers, lowered its fees for the Beijing area. Analysts say this could pressure other carriers such as China Netcom.

However, Zhang said the company has not yet seen any impact from the price reduction and Netcom had no plan to cut rates for its short-range wireless services -- known as ''little smart'' -- in Beijing.

Netcom chief financial officer Li Fushen said China's interest rate hike last month would increase the company's costs by 100 million yuan ($12.48 million) this year from 2005.

China's central bank raised its benchmark one-year lending rate to 5.85 percent from 5.58 percent in April.

Shares of China Netcom fell 3.1 percent in late Tuesday trade to HK$14.05, further slipping from a record of HK$15.70 made last week.

($1=8.012 Yuan) REUTERS PV KN1427