By Ben Berkowitz

LOS ANGELES (Reuters) - Japanese video game publisher Sega Corp.7964.T is looking to acquire other publishers in the United States and Europe as part of its bid to become the largest player in the booming field, a senior company executive said on Tuesday.

Sega, which abandoned the hardware market 18 months ago to focus exclusively on game software, is looking at a wide range of possible business combinations, Charles Bellfield, a Sega vice president told Reuters.

Sega has set a goal of becoming the No. 2 game publisher in the United States this year and vying for the No. 1 spot globally through fiscal 2004.

Sega may have kicked off the round of consolidation industry watchers have long expected by declaring an ambition to pursue other publishers much like its best-known character, Sonic the Hedgehog, pursues gold rings.

Bigger video game companies, flush with cash from recent record-level sales, have been widely expected to gobble up smaller publishers, taking advantage of their competitive difficulties such as the lack of economies of scale.

Bellfield said the only independent game publisher that Sega could rule out at the moment as an acquisition target was No. 1 publisher Electronic Arts Inc.ERTS.O , with a market capitalization of more than $8 billion and annual revenue of more than $1.7 billion.

Sega, which once made game system hardware to challenge industry leaders Nintendo and Sony, has benefited from its January, 2001 move to focus exclusively on software. The company returned to profitability on an operating basis in fiscal 2002 after two years of heavy losses.

While it is unclear how Sega would finance a potential deal, the company's cash hoard is almost twice as large as the market capitalization of Acclaim Entertainment Inc.AKLM.O , the largest U.S. publisher trading at less than $5 per share.

Sega had 59.91 billion yen ($508 million) in long-term convertible debt as of the end of March, but it also had 62.76 billion yen ($532.2 million) in cash.

TALKS BROKE OFF IN MAY

Bellfield said Sega had been set to announce a deal with a game publisher at the industry's Electronic Entertainment Expo in May, but the agreement fell through. He declined to name the company.

The most "interesting opportunities" for potential acquisitions were among the smaller, listed publishers that might provide development teams and intellectual property, such as rights to game franchises, Bellfield said.

But, he added, "(I) can't confirm or deny any particular talks with any particular company at this point."

The smaller U.S. listed game publishers, include notable names like Acclaim Entertainment Inc.AKLM.O , Midway Games Inc.MWY.N , Interplay Entertainment Corp.IPLY.O and 3DO Co. THDO.O

As of the close of trading on Tuesday, Acclaim had a market capitalization of $270.8 million, Midway had a capitalization of $196.7 million, Interplay had a market value of $29.8 million and 3DO's capitalization was $24.1 million.

Jeetil Patel, an analyst at Deutsche Bank Securities, said almost any company apart from EA was a possible acquisition target, including THQ Inc.THQI.O , which publishes Sega games for Nintendo Co. Ltd.'s7974.OS Game Boy Advance handheld console.

Bellfield also said Sega plans to be more directly involved in the European market in 2003.

He said there were no announcements at this point about the company's relationship with Infogrames Entertainment IFOE.PA , Europe's largest games publisher and distributor of Sega games in Europe. That distribution contract expires March 31, 2003.

After a report in the Wall Street Journal Europe on Tuesday about Sega's plans, shares in Infogrames Entertainment rocketed 23 percent on speculation the company could be a take-over target.

An Infogrames spokeswoman declined to comment, citing company policy on market rumors.

Shares in Infogrames' U.S. subsidiary, Infogrames Inc. IFGM.O were also higher, closing up almost 7 percent at $3.40 on Nasdaq, on volume more than four times their 90-day average.

($1 = 117.93 yen)