(Updates with Infineon shares, company no comment, analyst)
March 6 (Reuters) - Shares in German chipmaker Infineon Technologies fell by up to 5% on Friday after a Bloomberg report that U.S. security officials had advised President Donald Trump to block its $10 billion takeover of Cypress Semiconductor Corp.
Infineon declined comment, saying that it did not discuss ongoing proceedings as a matter of policy. Were the deal's chances to change materially, it would be required under German stock exchange rules to issue a statement promptly.
The Bloomberg report bloom.bg/2IoTpf6 said officials with the Treasury-led Committee on Foreign Investment in the United States (CFIUS) had concluded that the deal posed a national security risk, although it did not give a reason why.
Infineon shares pared losses after hitting their lowest since October to trade 2% lower. Cypress shares plunged by 17% in U.S. trading on Thursday's news.
Munich-based Infineon, announcing the deal last June, said it would create an automotive leader with a 13% market share by combining its prowess in managing electric drivetrains with Cypress's edge in in-car entertainment.
CEO Reinhard Ploss had originally hoped to close the deal around the end of 2019. He said last month that Infineon was still in a constructive dialogue with U.S. national security regulators.
Analyst Harchandani at Citi in London said it would be premature to assume the deal is off.
"As such, we see attractive risk-reward for the shares: deal or no-deal," he said of the Friday's Infineon sell-off. "However in case of no-deal, failing to get over the line at this juncture will likely result in a near-term overhang."
The deal could still be within the CFIUS investigation period, Harchandani added, meaning it might still be possible to take mitigating steps to make the transaction acceptable from a U.S. national security perspective.
Infineon, a constituent of Germany's DAX blue-chip index, had hoped for a lift into the world's top-10 semiconductor makers through the deal. With footprints in the United States and China it however finds itself in the middle of a deepening technology trade conflict between Washington and Beijing.
The company earlier played down concerns that the takeover might be blocked by CFIUS, saying that Cypress' focus on automotive products meant its products were not sensitive.
U.S. LED lighting maker Cree Inc terminated a deal to sell its Wolfspeed Power and RF division to Infineon in 2017, after the U.S. government raised security concerns. reut.rs/2vHOenU
The White House and the Treasury did not respond to a request for comment. Silicon Valley-based Cypress declined a Reuters request for comment. (Reporting by Douglas Busvine in Berlin and Rama Venkat in Bengaluru; Editing by Peter Cooney and Michelle Martin)