UPDATE 2-China's Huawei wins largest LTE deal in Europe

* LTE to replace Ericsson, Nokia Siemens networks

*$175 million total cost; largest LTE deal so far in Europe

* Starent to provide core network

* Total cost seen at $175 million

* Ericsson down 3.55 percent, Telnor up 1.48 percent

OSLO, Nov 5 - China's Huawei has won a contract to build Norway a fourth generation (4G) mobile network, replacing the older networks of market leaders Ericsson and Nokia Siemens Networks in their own backyard.

The deal, announced on Thursday, is the largest one so far for the new LTE technology in Europe, making it a milestone for secretive, state-tied Huawei.

Norway's Telenor said the deal was worth 1 billion crowns ($175.4 million) over the next five years. It said that Starent would supply the core network as part of the deal.

"This deal is hugely significant in the grand scheme of things. Remarkably, Telenor has chosen to replace Ericsson and Nokia Siemens Networks with non-Scandinavian network partners," said analyst Paolo Pescatore from CCS Insight.

Pending approval from Telenor ASA's board, the six-year deal will also merge Telenor's older networks into the new network.

"Their decision demonstrates that the economic benefits of moving to a combined infrastructure are simply too large to ignore," said Pal Zarandy, partner at telecoms consultancy Rewheel.

The news sent shares in Ericsson 3.55 percent lower to close at 72.0 crowns, while Telnor ended up 1.48 percent at 75.6 crowns.

The top wireless gear makers Ericsson, Nokia Siemens and Alcatel-Lucent have been hit hard by the recession, which has crimped operator spending, and by tough competition from China's Huawei and ZTE.

Telenor said "a combination of technical quality, reliability in terms of handling a large-scale equipment replacement operation, and commercial terms" were the deciding factors in picking the Huawei and Starent.

"Compared with what we have today, (operating) costs will be halved with the new network. It remains to be seen how agressive we will build out the network and provide new services. We estimate this around 1 billion crowns over five years," Rolv-Erik Spilling, Telnor's head of technology in Norway, told Reuters.

Earlier this week struggling Nokia Siemens unveiled a plan to cut up to 5,800 jobs and save more than 1 billion euros ($1.48 billion) to stay competitive.

Last month, market leader Ericsson reported third-quarter earnings below expectations and declined to forecast an upturn.

In October, Cisco Systems Inc announced a deal to buy Starent Networks for about $2.9 billion. ($1=5.701 Norwegian Crown)