Telefonica SA (TEF) said Sunday it has reached an agreement to deepen its strategic alliance with China Unicom (Hong Kong) Ltd. (CHU).

In a Spanish regulatory filing, Spain's largest telecommunications company by market value said it will increase its stake in China Unicom to 8.06% from 5.38% previously and that China Unicom will have shares equal to between 0.885% and 0.892% of Telefonica.

The two companies will spend $1 billion each on the share purchases, Telefonica said.

-By Jonathan House, Dow Jones Newswires; +34 619 93 39 52; jonathan.house@dowjones.com