* Rising outdoor advertising revenue drives M&A rush in sector
* APN lifts offer for rival HT&E division by 8 pct
* APN shares fall 1.7 pct, HT&E shares up 3 pct
* France's JCDecaux also bidding for APN (Recasts adding HT&E response, share price moves, analyst quote and background)
By Tom Westbrook
SYDNEY, June 22 (Reuters) - Australian billboard firm APN Outdoor Group APO.AX sweetened its takeover bid for rival HT&E Ltd's HT1.AX bus stop advertising business on Friday, heating up an international tussle for dominance in Australia's lucrative outdoor ad market.
Four firms control 97 percent of the A$900 million ($660 million) industry and, with digital ad boards dramatically lifting their earnings potential, they are all looking at deals in an M&A rush that is drawing close scrutiny from regulators.
APN has hiked by 8 percent a cash-and-scrip offer which it said values HT&E's Adshel business in Australia and New Zealand at A$540 million. oOh!Media Ltd OML.AX , which has the biggest market share in the sector with a little over 40 percent according to IBISWorld, has already bid A$470 million cash and HT&E said on Friday it expects more offers still.
A day earlier French advertising company JCDecaux JCDX.PA , No.3 by market share, offered A$1.09 billion for second-placed APN, drawing a frosty response from the Australian firm. the hurry is the sector's strong revenue, which is climbing at a clip of an average 8.2 percent per year IBISWorld said, as the impact of digital billboards is robust while revenue falls in traditional television advertising.
"A digital billboard can generate anywhere between two and seven times the revenue of a static billboard," said Ivor Ries, senior analyst at stockbroker Morgans.
"You can sell the space a few times over (and) you can change the message a few times a day - it's more useful to the advertiser."
Further hastening the shakeout is Australia's competition watchdog which, after blocking a merger between APN and Ooh!Media last year, is seen likely to refuse to allow JCDecaux to own anyone that controls Adshel, because it would deliver them a street-furniture monopoly.
"It's crunch time for JCDecaux, they have to move (buy APN) or potentially face being hemmed in strategically" if APN buys Adshel, Ries said.
HT&E shares jumped as much as 4.2 percent, close to a month high, in early trade while APN stock, which has added 30 percent for the year to date, eased by 1.7 percent. The broader market .AXJO rose 0.2 percent while the Paris exchange, where JCDecaux is listed, was closed.
APN, which owns 125 billboard sites across Australia and New Zealand and expects its underlying earnings to rise between 1.8 percent and 6.4 percent this year, believes purchasing the Adshel bus stand ad business will grow revenue even further and diversify the firm.
Following bids from APN and ooH!Media, HT&E has run a sales process for Adshel, with final offers due at 5 pm local time (0700 GMT) Friday.
"HT&E ... expects to receive offers for Adshel from other interested parties," it said in a statement. A spokeswoman for JCDecaux had no comment. ($1 = 1.3537 Australian dollars)