Shares in AIB surged by 5.5 per cent yesterday as rumours of an imminent take-over bid swept the stock market in the closing half hour of trade.

Such was the extent of the latest bout of speculation that dealers said there was talk that a bid of £15 sterling (€21.76) per share was in the offing, possibly as early as today. The main name mooted late yesterday as a possible bidder for AIB was the British bank Lloyds TSB. Some speculation also continues to surround Deutsche Bank as a bidder.

However, most sources in Dublin believe the speculation is likely to prove unfounded and is merely a continuation of the gossip of a likely bid which first surfaced in earnest late last week. While the share price rose strongly yesterday, there is not believed to have been any unusual trading patterns indicating that any other institution was building up a stake. AIB's share price closed at €18.15 (£14.29) yesterday, up 95 cents, having briefly hit a high of €18.70. The surge in AIB, which accounts for nearly a quarter of the ISEQ index of leading shares, helped the Irish stock market buck the general international trend which saw most other European markets close lower.

Speculation that the state's largest bank could be the target of a take-over approach has been fuelled in recent days by further consolidation in the financial sector across Europe. French banks Societe Generale and Paribas announced on Monday that they were planning a merger which would create Europe's third largest bank behind Switzerland's newly-created UBS and Deutsche Bank in terms of assets.

Meanwhile, the French insurance group Axa is to buy UK insurer Guardian Royal Exchange while Irish Life and Irish Permanent's merger plan was followed by news that Anglo Irish Bank is buying Smurfit Paribas.

Speculation about a likely buyer for AIB has centred on the German bank, Deutsche, in recent weeks although many in the market - and other reliable sources - believe this is misplaced, pointing out that the German bank is fresh from a series of expensive acquisitions.

Sources close to the German company have also suggested that the speculation is misdirected.

Lloyds TSB was first linked to AIB in rumours late last week, although these gathered force late yesterday. The British bank, which includes brands like Cheltenham & Gloucester, has been linked with a number of other banks in recent months including British rival Barclays Bank and Dutch giant ABN Amro.

It is significantly larger than Deustche, with a market capitalisation of more than €62 billion, compared to Deutsche's €26.5 billion.

An AIB spokeswoman maintained the group's recent stance that it would not comment on market speculation. Sources, however, said that they believed the rumour was probably unfounded, pointing to the high levels at which AIB's shares are trading as a barrier to any bid.

Sources in the Dublin stock-broking company also remain sceptical, although the extent of the recent speculation has taken many by surprise.