MADRID, Sep. 7, 2009 (Xinhua News Agency) -- Spanish telecommunications giant Telefonica has increased its stake in Chinese phone operator China Unicom. (OOTC:CHUFF)

The two companies signed a deal Sunday which saw China Unicom, the third largest telecommunications company in China, take a 0.88-percent stake in Telefonica.

Telefonica's stake in the Chinese company grew from 5.35 percent to slightly over 8 percent in the deal that would see both companies spending around 1 billion U.S. dollars.

It is the first time that a Chinese phone operator has acquired a capital stake of any foreign telecommunications company.

China Unicom has acquired 40.7 million shares in Telefonica at a cost of17.2 euros (24.5 U.S. dollars) a share, while Telefonica bought 693 million shares in Unicom at a cost of 11.17 dollars each.

With the move, Telefonica has now around 10 percent of the world telecommunications market, overtaken only by China Mobile and U.S. company AT&T. (NYSE:SBT) (NYSE:T)

The Spanish company has followed an expansion policy in recent years, which saw it take Latin America's BellSouth and British company 02.