UPDATE 1-DSG says not in talks to be bought by Metro

(recasts with comment from DSG)

LONDON, Sept 6 (Reuters) - DSG International Plc (DSGI.L: Quote, Profile, Research, Stock Buzz), Europe's second-biggest electrical goods retailer, said on Saturday it was not in talks with bigger rival Metro AG (MOEG.DE: Quote, Profile, Research, Stock Buzz) about a possible takeover by the German firm.

Earlier, the Financial Times reported DSG had made an informal approach to Metro in the Spring about being bought by the German retailer's electrical goods business Media Markt, but that Metro had rejected the idea.

"We are not in any discussions whatsoever with Metro," said a spokesman for Britain's DSG, which trades as Currys and PC World in the UK, UniEuro in Italy and Elkjop in Nordic countries.

Citing people familiar with both companies, the Financial Times said Metro was put off by the size of the potential deal.

"We never comment on speculation and rumour," the DSG spokesman said about the Financial Times report. "DSG is totally committed to its renewal and transformation plan. The management team led by John Browett is completely focused on that."

Metro, Germany's biggest retailer, declined to comment.

An industry source said an attempt to combine Europe's two biggest electrical goods retailers could meet opposition from anti-trust regulators.

"There would be some interesting conversations if it did happen," the source said, noting that DSG's and Media Markt's businesses overlapped in Italy and some Scandinavian countries.

Both DSG and Media Markt are battling a slowdown in consumer spending, exacerbated by growing competition from supermarkets and online retailers such as Amazon.com (AMZN.O: Quote, Profile, Research, Stock Buzz).

On Wednesday, DSG reported a 7 percent drop in like-for-like sales for the 16 weeks to Aug. 23.

The group, whose shares have slumped around two-thirds over the past year, launched a transformation plan in May focused on improving stores and customer service, developing its online business and cutting costs.

Like-for-like sales at Media Markt and Saturn, Metro's electrical goods businesses, fell 0.8 percent in the first half of 2008.

Both DSG and Media Markt face fresh competition next year, when U.S. group Best Buy (BBY.N: Quote, Profile, Research, Stock Buzz), the world's biggest electrical goods retailer, opens its first store in Europe as part of a joint venture with Britain's Carphone Warehouse (CPW.L: Quote, Profile, Research, Stock Buzz) announced earlier this year.

Some analysts have suggested that venture might itself bid for DSG to gain stores and a distribution network.

But Roger Taylor, chief executive of the venture, told Reuters in July it was "too early" to talk of acquisitions and that its focus was on opening its own stores.  Continued...