* Juniper to return $3 bln to shareholders in 3 years

* To start quarterly dividend of $0.10 from 3rd quarter

FRANKFURT/HELSINKI, Feb 20 (Reuters) - Finland's Nokia is considering buying U.S.-based Juniper Networks to merge into its telecommunications network gear business, German's Manager Magazin Online reported, citing unidentified sources.

Nokia Solutions and Networks (NSN) Chief Executive Rajeev Suri travelled to the United States late last year to discuss with Juniper's management closer cooperation and a possible merger that would strengthen NSN's weak U.S. business, the online magazine said on Thursday.

Juniper has a stock market value of $13.7 billion, making it a major takeover target for Nokia, but Manager Magazin said Nokia could use Juniper's $3.1 billion cash to help finance the purchase.

NSN will be Nokia's primary operation after the sale of its devices and services business to Microsoft in a 5.4 billion euro ($7.4 billion) deal, which is expected to close by the end of next month.

Nokia had indicated it is looking at a number of options as part of its strategic review to be completed in March.

A source familiar with NSN's strategy said no such deal was imminent. Analysts have said, however, that NSN and other smaller network equipment players are likely to pursue M&A because high costs of developing better mobile broadband infrastructure puts players with bigger research and development budgets at an advantage.

NSN and Juniper are already in a partnership to develop and sell network equipment to carriers.

Nokia's former Chief Executive Stephen Elop, who will return to Microsoft after the deal closes, was COO of Juniper for about a year from early 2007.

Raymond James analyst Simon Leopold said a deal with Juniper was unlikely, with a failed joint venture focused on enterprise switching and present partnerships having "not amounted to much."

Nokia would have to offer "at least" 10-20 percent premium to where Juniper's stock is trading now, Needham & Co analyst Alex Henderson said. He added that a deal was unlikely as Nokia lacked the wherewithal and synergies.

Representatives of Nokia, NSN and Juniper declined to comment on the latest report.

Juniper said later in the day it would return a minimum of $3 billion to shareholders over the next three years through a combination of share repurchases and dividends.

The network equipment maker said it would start a quarterly cash dividend of 10 cents per share from the third quarter.

Paul Singer's Elliott Management Corp, which owns a 6.2 percent stake in Juniper, has urged the company to buy back shares, start paying a dividend and consider slimming down.

The hedge fund said the "undervalued" stock could be worth $35-$40 if Juniper implemented its suggestions and focused on revamping its core business of making routers and switches for mobile carriers such as Verizon Communications Inc and AT&T Inc.

Last week, hedge fund Jana Partners disclosed a 2.65 percent stake in Juniper to push the company to cut costs.

"We suspect a merger with Nokia would satisfy the activists if Nokia paid a material premium to Juniper's current $27.20 per share, perhaps valuing Juniper over $35 per share, or a market cap above $17.5 billion," Raymond James' Leopold said.

After years of concentrating on cutting costs, NSN has said it is now focussing on expanding the business and competing more aggressively against industry leader Ericsson and China's Huawei.

Other sources have said Nokia has considered a tie-up between NSN and French rival Alcatel-Lucent. Suri has not ruled out acquisitions but has also said the company could grow on its own.

Juniper's shares closed marginally up at $27.41 on the New York Stock Exchange. They rose to a high of $28.38 earlier in the day.