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The acquisition of one of the mobile telecommunications industry's most storied names is Google co-founder Larry Page's boldest move since taking over as CEO in April, launching the Internet giant into a lower-margin manufacturing business and pitting it against many of the 38 other handset companies that now use its Android software.

Motorola Inc was split this year into two: Motorola Mobility, which got the faster-growing cellphone and TV set-top box businesses; and Motorola Solutions, which sells gear like walkie-talkies to corporate and government clients.

Google is paying a massive 63 percent premium to gain access to one of the mobile phone industry's largest patent libraries. The company had been under pressure to build a patent portfolio after losing out to Apple, Microsoft Corp and others in a recent auction of bankrupt Nortel's assets.

Unlike the Nortel deal and others, the fact that Google avoided having to compete in an auction for Motorola by engaging in exclusive negotiations for the company underscores the pressure it was under to bolster its patent portfolio. Paying such a rich premium even though it was the only buyer dovetails with analysts' view that the increasingly litigious posture its competitors have taken over intellectual property left the Internet search giant with no choice but to pay up.

"No matter how you think about this, you have to look at it through the spectrum of the Android ecosystem under incredible attack from an IP (intellectual property) perspective. And this is Google going out and trying to fix that," said W.P. Stewart Advisors Chief Investment Officer Jim Tierney. "The biggest implication here is that Google wants Android to be one of the dominant phone operating systems for years to come."

Wall Street quickly anointed Microsoft a winner in this deal, with Windows benefiting should the move spur current Android partners to explore other options.

The deal also stoked speculation that struggling Nokia and Research in Motion would become takeover targets themselves, sending Nokia's shares up 17.35 percent and RIM's up 10.3 percent.

Google made its first foray into hardware by co-developing the Nexus One phone with HTC in 2010 -- an effort that met mixed results. Monday's deal, however, could mark the start of a shift to an Apple-style model, integrating mobile hardware with underlying software.

"Google decided to cross the Rubicon on the device side," said Fred Huet, head of telecoms and media consultancy Greenwich Consulting. "There has been growing frustration (at Google) about the lack and speed of internet centric devices.

"With Nexus they tried to show the industry what they thought was the right evolution for handsets and it did not have an impact .... With the patents they make sure that Android stays strong."

THE MORE THINGS CHANGE ...

The acquisition is likely to draw even closer regulatory scrutiny than usual, with the search leader already the subject of antitrust inquiries. Experts will want to review how it affects mobile industry competition.

But the deal -- which took Wall Street by surprise -- appears to mark a shift in strategy from Google's traditional Internet search and advertising empire and forays into video and social networking.

"The danger is that other handset makers feel disenfranchised," said Nomura Securities global technology specialist Richard Windsor. "Motorola is the weaker player. This could actually collapse the entire community."

Page, who also launched the ambitious Google+ social network since taking over as CEO, reassured investors on Monday this would not happen, saying Motorola will be run as a separate company licensing Android software in the same way as rivals like HTC Corp and LG Electronics.

Phone makers including Samsung officially said they welcomed a deal that will aid their own legal battles, but some analysts questioned the sincerity of those claims, noting that rival companies would now be unlikely to heavily promote Android since it would benefit a direct competitor.

Andy Lees, president of the Windows Phone Division at Microsoft, said in a statement that, "Investing in a broad and truly open mobile ecosystem is important for the industry and consumers alike, and Windows Phone is now the only platform that does so with equal opportunity for all partners."

Some analysts also doubt that Google will continue manufacturing handsets in the long term.

"We don't think they necessarily want to be in the handset business. They want those patents first and foremost," said Brian Pitz, an analyst at UBS. "This is really a game of protection."

Analysts say that Google's rivals are likely to continue to enforce their patent rights on mobile devices through legal means. Microsoft, for instance, recently settled a lawsuit with HTC over the Taiwanese company's Android devices. Oracle is also seeking billions of dollars from Google for infringing on Java patents. Analysts expect Apple to continue its increasingly effective patent war against its rivals as well, which could hurt Google by potentially raising licensing costs that need to be paid to Apple.

While Apple's iPhone leads in market prestige and is considered more innovative, Android has managed to quietly surpass it in market share. Android held a 43.4 percent share of the smartphone market at the end of the second quarter, ahead of Nokia's 22 percent, according to Gartner data. Apple ranked third with 18 percent, the data showed.

Shares of Motorola Mobility jumped more than 55 percent on the news, while Google shares fell by roughly 1 percent.

The deal values Motorola Mobility at $40 per share in cash, a 63 percent premium to its Friday closing price. The terms of the deal also features an unusually rich reverse breakup fee of $2.5 billion, according to a source close to the situation.

"It's a deal that will take time to pay off, but they have a lot of cash and they want to chase after profit," BGC Partners analyst Colin Gillis said.

The deal delivers a windfall for investors including Carl Icahn, Motorola's top shareholder with a stake of just over 11 percent. The activist shareholder had been urging Motorola to look into splitting off its patent business -- one of the biggest in the industry -- from its handset business, ranked eighth in the world by Gartner in terms of unit sales. In late July, Icahn even went so far as to estimate that Motorola could be worth $44 per share, or $13 billion in a sale.

Despite cashing out for $4 less than what he estimated the company was worth, Icahn said he was "quite happy with this result."

It's unclear how much Icahn spent on his stake in Motorola since he started scooping up shares in 2007, but regulatory filings indicate it may have been about $3 billion. His stake in Motorola Mobility is worth about $1.34 billion at the deal price, up by $520 million since Friday. Including his stake in Motorola Solutions, Icahn's total stake is about about $2.9 billion in the two companies.

INTO THE LIVING ROOM

As part of the deal, Google also gets Motorola's set-top box businesses, giving its nascent TV operation a much-needed boost by providing it with a more direct route into the home.

Bernstein analyst Craig Moffett noted that Google, a frequent disrupter of the pay-television market via its ownership of YouTube and launching of over-the-top TV products that allow consumers to get streaming video in the home, will now be one of its largest suppliers.

"It will be fascinating to see whether this tempers their enthusiasm for disruptive business models as they have to face the practical realities of satisfying their cable customers," said Moffett. "I think the cable industry would be delighted to see Google inside the tent."

Google said it expects the deal to close by the end of 2011 or early in 2012, and that it was confident it would gain the regulatory approvals required in the United States and Europe and the blessing of Motorola Mobility's shareholders.

Others aren't so sure.

"The legal question here is would this deal give Google the incentive to make Android less open or somehow discriminate against the other smart phone and tablet makers," said Beau W. Buffier, a lawyer with Shearman & Sterling LLP. "That will be the key issues in any review both here in the U.S. or in Europe."

The fact that the deal has the support of other major mobile device players who have a stake in the matter should help Google in the regulatory process.

Lazard advised Google on the deal, while Motorola used Centerview Partners and Frank Quattrone's Qatalyst Partners, sources told Reuters.

(Additional reporting by Sayantani Ghosh in Bangalore, Nadia Damouni, Phil Wahba and Franklin Paul in New York, Lilly Kuo in Washington; Writing by Edwin Chan; Editing by Peter Lauria, Richard Chang, Phil Berlowitz)

In its biggest deal to date, Google said it would pay $40 per share, a 63 percent premium to Motorola Mobility's Friday closing price on the New York Stock Exchange.

"What it says is that Google wants to provide a total experience that's hardware and software (like Apple)," said BGC Partners analyst Colin Gillis.

Shares of Motorola Mobility, which focuses on smartphone and TV set-top boxes, jumped 59 percent in premarket trade on Monday.

Google, maker of the Android mobile phone operating system software, has been forging ahead in the smartphone market but has been hampered by a lack of intellectual property in wireless telephony.

Earlier this month, fresh from losing a bid to buy thousands of patents from bankrupt Nortel, Google Chief Legal Officer David Drummond blasted Microsoft, Apple, Oracle and "other companies," accusing them of colluding to hamper the increasingly popular Android software by buying up patents.

The Motorola Mobility deal may represent a victory for activist investor Carl Icahn, Motorola's biggest shareholder. He has urged Motorola to consider splitting off its patent portfolio to cash in on surging interest in wireless technology. As of July, Icahn held an 11.36 percent stake in the company.

Google said the deal will close by the end of 2011 or early in 2012 and that it will run Motorola Mobility as a separate business.

Lazard advised Google on the deal, while Motorola used Centerview Partners and Frank Quattrone's Qatalyst Partners, sources told Reuters.

(Reporting by Franklin Paul in New York and Sayantani Ghosh in Bangalore; additional reporting by Nadia Damouni and Phil Wahba in Ne; Editing by Saumyadeb Chakrabarty and John Wallace)

Time Warner could announce the deal as soon as Monday morning, the source said.

Insight is the 10th-largest cable operator in the United States, Carlyle's website says. It sells cable television, high-speed Internet and telephone services, serving around 750,000 customers in Illinois, Indiana, Kentucky and Ohio.

Insight representatives approached Time Warner in recent weeks to discuss a deal after failing to reach agreement with other strategic and private equity bidders, the source said.

TWC had dropped out of an auction for Insight earlier this year, because the company believed Carlyle was asking for too much, a source told Reuters in May. Carlyle had originally been looking for around $4 billion, sources said then.

Executives at Time Warner Cable have regularly said that any acquisition targets would not be valued at a higher multiple than its own stock.

This is Time Warner Cable's largest acquisition since it was spun off from former parent Time Warner Inc in 2009. Earlier this year it paid $260 million for NewWave Communications, a small cable operator with cable systems also in the Midwest.

The deal could enable Time Warner Cable to reap programing cost savings, tax benefits as well as other operating synergies. Insight owns cable systems that are contiguous to Time Warner Cable's in the Midwest United States including states of Ohio, Kentucky and Indiana.

Time Warner and Carlyle declined to comment. Insight could not be immediately reached for comment.

Shares of Time Warner Cable closed at $65.51 on Friday.

(Reporting by Yinka Adegoke, Writing by Michael Erman; Editing by Dale Hudson and Muralikumar Anantharaman)

With the blow from the August 5 U.S. credit rating downgrade behind them, investors will focus on the outlook for the U.S. economy as well as signs that European policymakers may be able to contain the euro zone debt crisis.

Widespread investor panic put the market on a roller-coaster ride last week, with steep losses followed by nearly-as-steep gains in high-volume trading. It was the busiest week for volume since October 2008.

Though investors are still searching for a bottom in the selloff that has taken the benchmark Standard & Poor's index down 12.4 percent since July 22, indexes rose both Thursday and Friday -- the S&P index's first two-day rally since mid-July -- and volatility eased.

The move could set stocks up for a calmer week, especially if economic data shows the United States is not headed for another recession, strategists said.

"Every bit of data that shows the economy not slipping into recession is going to be the basis for the market to begin to calm down in the weeks ahead," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

While Wall Street stocks ended higher on Friday, the market fell for the week. The Dow fell 1.5 percent and the Nasdaq lost 1 percent. The S&P 500 fell on 11 of the past 15 days, dropping 12.4 percent in three weeks.

Housing and manufacturing reports are among indicators on tap, including the New York and Philadelphia Federal Reserve regional manufacturing surveys and existing home sales.

Manufacturing has been among the strongest sectors of the economy, but a report earlier this month dented that picture.

The Institute for Supply Management manufacturing report, a gauge of factory activity, fell to in July to its lowest in two years and was barely above the mark dividing growth and contraction.

It was quickly followed by an ISM report showing the pace of growth in the U.S. services sector ticked down unexpectedly.

More recent data has suggested the economic recovery will stay on course.

U.S. Commerce Department data on Friday showed retail sales posted the biggest gains in four months in July, which was a catalyst for stocks to rise.

"We think the deterioration in the U.S. macro outlook got us into this mess and will likely get us back out," said Barry Knapp, head of US equity portfolio strategy at Barclays Capital in New York.

"If we're right ... we will get the stock market to trade at least back into its old 1,250 to 1,350 range that prevailed from March through the recent downturn."

Retail earnings were among the few bright spots in the market last week. Kohl's Corp reported earnings that beat estimates and raised its full-year profit view.

Results from more top retailers are expected this week, including Wal-Mart Stores, due to report on Tuesday.

"I will be looking for any data that show what back-to-school (sales) might look like, and later, into the fall, we'll be looking for what the holiday season might look like," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

Earnings growth for the second quarter is expected to have risen 11.8 percent, according to Thomson Reuters data, and many analysts consider the solid growth to remain a cushion for stocks going forward.

The S&P 500's price-to-earnings ratio is at 10.46, according to Thomson Reuters data, considered cheap by historical standards.

That valuations are cheap suggests to some strategists that stocks remain attractive, especially when compared with U.S. Treasuries, but others say earnings expectations are likely to deteriorate going forward.

Besides concerns about the U.S. economic outlook, worries about the European debt crisis persist.

Investors look forward to a meeting this week between French President Nicolas Sarkozy and German Chancellor Angela Merkel, who are expected to discuss how to make the euro zone work more effectively in dealing with the crisis.

TECHNICAL DAMAGE

Technically, the market remains weak.

"Most technicians would agree that the long-term market cycle has been damaged, given two-year uptrends have been broken, monthly momentum indicators have turned down, and a lengthy list of stocks have collapsed through important long-term support levels on expanding volume," analysts at RBC Capital Markets said in a research note Friday.

Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said one sign the market's downturn may not be over is a measure of stocks with 52-week highs versus 52-week lows, which is low.

(Reporting by Caroline Valetkevitch; editing by Kenneth Barry)