By Alistair Barr

SAN FRANCISCO (Reuters) - PayPal is in the early stages of what may be a blockbuster mobile payments deal with McDonald's Corp, the world's biggest hamburger chain.

McDonald's is testing a mobile payments service featuring PayPal at 30 of its restaurants in France. Earlier this year, McDonald's ran demonstrations of a broader PayPal mobile payments service at its franchisee conference in Orlando, Florida.

A McDonald's spokeswoman confirmed the France tests and said the PayPal demonstration at its conference was part of a booth that features "technology coming within the next 24 months or so."

PayPal is racing against start-up Square Inc and other technology companies to become the mobile payments service of choice as consumers increasingly use smart phones to make purchases in shops, restaurants and other retail locations.

Square struck what could be its most important partnership to date last week when it teamed up with Starbucks Corp, the world's largest coffee chain.

PayPal, owned by eBay Inc, has signed up more than 15 retailers, including Home Depot and Office Depot, to accept PayPal payments in their stores.

But landing a partner the size of McDonald's, with over 30,000 restaurants, would be a big win, according to analysts.

"McDonald's would certainly be a whale," said Gil Luria, an analyst at Wedbush Securities. "If McDonald's customers can stand in line and order on a mobile app and pay with PayPal that is a huge extension of PayPal's reach." Continued...