Shares in Telefonica have surged after the Spanish telecoms company said it would turn off the cash flow to some of its loss-making operations in Europe and instead focus on the Spanish speaking world.

Telefonica wants to focus on South American markets

It will cost Telefonica almost 5bn euros to ditch its third generation (3G) mobile phone operations in non-Spanish Europe.

Yet a slew of investment banks promptly recommended investors to buy shares in the telecoms company, sending the stock 14% higher by midday in Europe.

"This is positive for the stock," said ABN Amro telecoms analyst, Alfredo Tannenbaum,

"The expected losses from maintaining third generation operations was a major concern for investors and the return to paying dividends is also a plus."

Back to basics

On Wednesday evening, Telefonica reported a 5.57bn euros loss for the first half of this year which included a 4.49bn euros charge to cover the closure of its 3G mobile operations in Germany, Italy, Switzerland and Austria.

Most of Telefonica's 3G investment has now been lost, but in the long run the group should benefit from this decision, a spokesman said.

"At the moment, there are too many doubts hanging over UMTS for us to continue investing in it," he said.

The company will instead focus on its South American operations where it already dominates several markets.

"We are focusing our business where we think there is organic growth."

However, the economic crisis in Argentina continues to weigh on the firm's bottom line.

Telefonica is also a large player in the Brazilian telecoms market.