UK retailers Dixons and Carphone get extension to merger talks

* UK Takeover Panel gives Dixons, Carphone until May 19

* Sky News report says Phones4u could enter fray

* Source says Dixons not in tie-up talks with Phones4u (Adds detail of report of possible Phones4u interest, shares)

By James Davey

LONDON, March 24 (Reuters) - Britain's Takeover Panel has granted Dixons Retail (Other OTC: DSITF - news) and Carphone Warehouse (LSE: CPW.L - news) an eight-week extension to their negotiations for a possible 4 billion-pound ($6.6 billion) merger.

The extension was given on Monday as speculation that rival Phones4u could enter the fray was dampened.

Dixons, Europe's second-biggest electricals retailer, and Carphone, Europe's largest independent mobile-phone retailer, now have until May 19 to confirm whether they intend to press ahead with a deal that would create a group with about 2,900 stores across Europe and which it is expected would find a place in Britain's FTSE 100 share index.

Dixons and Carphone announced they were in merger talks on Feb. 24 and the Takeover Panel set an original deadline of 1700 GMT Monday.

"Since the announcement of Feb. 24 was made when discussions were at a very preliminary stage, both parties have agreed that they require more time to evaluate a potential merger of the two businesses," the two companies said on Monday.

A Sky News report said BC Partners, the private equity firm that owns Phones4u, sounded out senior Dixons executives about a possible tie-up in the days following the emergence of the Carphone merger talks.

Phones4u already operates outlets in some Dixons stores through a deal that runs to May 2015.

A source familiar with the situation told Reuters Dixons was not currently in talks with Phones4u about any other business tie-up.

Shares in Dixons closed up 0.2 percent at 49.96 pence, valuing the business at 1.8 billion pounds. Shares in Carphone closed down 4.8 percent at 323.6p, valuing that business at 1.87 billion pounds.

Both Dixons and BC Partners declined to comment. ($1=0.6065 British Pounds) (Additional reporting by Freya Berry; Editing by Kate Holton, Greg Mahlich)