MEXICO CITY, JULY 31 -- The government plans to sell a 20.4 percent stake in the national telephone company by Dec. 20, the first stage in Mexico's largest privatization effort, newspapers reported today.

The current value of Telefonos de Mexico shares is more than $8 billion. About half of them are held by the government, which would give up control of the company with the sale of the 20.4 percent stake.

The newspapers reported the Ministry of Finance and the Banco Internacional, financial agent for the sale, said that while foreign investors could participate, control of the company would remain in Mexican hands.

The daily newspaper El Financiero quoted officials as saying the government intended to sell 10.4 percent to Mexicans and 10 percent to foreign investors.

The Finance Ministry said the overall price for the 20.4 percent stake would be between $1.4 billion and $1.8 billion.

It said that within a year, the government would sell all of its shares, valued at more than $4 billion.

El Financiero said foreign interest is coming from Telefonia Espanola SA, Bell Canada, Britain's Cable and Wireless PLC, France Telephone and the former Bell System companies US West Inc. and Southwestern Bell Corp.

The reports said Banco Internacional plans to announce terms of the auction between Aug. 13 and Sept. 7. They said the bank planned to make bids due on Nov. 15 after a period for visits to Telmex facilities and questions by potential buyers and winning bidders would be notified and payment of guarantees arranged between Dec. 4 and Dec. 20.

Banco Internacional said the sale would be designed to insure Mexican control, guarantee rights of workers and their participation in capital, improve service, encourage continued growth and strengthen technological investment.