The boards of BP Amoco and Atlantic Richfield (ARCO) will both meet tomorrow to approve a $25 billion (€23.2 billion) deal that tightens the grip of Britain's biggest firm in the global oil business, investment banking sources said.

The companies plan a joint announcement on Thursday on the terms of the all-stock takeover of the seventh largest US oil group by BP Amoco, the world's third biggest listed oil company.

A spokesman for BP Amoco, which said on Monday it was in talks with ARCO, declined to say when a deal might be announced or when the two boards would meet to finalise terms.

Fund managers, however, are already busy building up their holdings in BP Amoco, fearing a squeeze in the stock as the takeover nears.

Analysts said the purchase of Los Angeles-based ARCO - expected to be clinched at $77 a share - would lift BP Amoco's weighting in the FTSE 100 index to 10 per cent, exacerbating the underweight position of funds in Britain's largest company.

`'With oil prices going up and greater confidence coming back into the industry, it would not be a wise person to be underweight in BP Amoco at the moment," said Mr John Toalster, oil industry analysts at SG Securities.

Salomon Smith Barney estimates that British institutional investors - who have yet to increase their weightings fully following BP's $55 billion purchase of Amoco - were underweight in BP Amoco to the tune of around £20 billion sterling (€30 billion) prior to this month's rally in oil prices.

The company's ambition to vault further up the league table, already applauded by most analysts, won a fresh endorsement from influential ratings agency Moody's Investors Service.

Moody's said an all-stock deal would reinforce BP Amoco's Aa1 long-term debt rating and result in a review of ARCO's A2 senior debt rating for upgrade.

"While raising integration concerns for the newly-formed BP Amoco, and increasing debt levels, Moody's believes that the potential merger of BP Amoco and ARCO would have operational and financial benefits".