Eircom shares surged by 10 per cent to €2.24 driven by speculation that another European telecom company is set to bid for the Republic's biggest fixed-line player, write Barry O'Halloran and Una McCaffrey

The speculation was sparked by a newspaper report claiming that Swiss operator Swisscom had approached Eircom in recent weeks with a view to bidding €3 billion for the company.

It came a day before this morning's 11am deadline for existing shareholders to declare that they wish to take up their rights to buy the 313 million new shares that the company will issue today at €1.35.

The rights issue will fund Eircom's purchase of mobile player, Meteor, a deal that still has to win the approval of the Competition Authority.

The company denied that it was in talks with Swisscom in a statement yesterday, saying: "The company confirms that it is not currently in discussions with that company or any other in relation to a possible offer."

Swisscom did make informal contact with Eircom about a possible approach several months ago but talks ended at an early stage, according to sources. The potential approach was made within the last year at a time when Swisscom was actively seeking acquisitions across Europe.

Eircom's share price gained around 10 per cent in Dublin to close at €2.24, and made a similar amount in London.

The actual volumes of shares traded outstripped normal levels of business. In Dublin, 9.4 million units changed hands, double the average for the last three months of 4.8 million.

In London, investors bought close to 23.4 million shares.

The speculation is rooted in the fact that three London brokers, Cazenove, UBS and Deutsche Bank began buying up the rights to purchase the new shares that Eircom plans to issue. Trade in the new units is due to start on Wednesday.

The brokers have been buying "nil-paid rights", which give them the right to buy the new Eircom shares when they are issued. Existing shareholders sell these instruments at a price close to the difference between the quoted price and the issue price.

Trade in the nil-paids was also heavy yesterday, and their price added 30 per cent to close at 90 cent. Anyone who bought them at that price will have to pay a total of €2.25 a unit when they exercise their rights to the new shares on Wednesday.

Nil-paid buyers do not have to declare their interest to the markets, until such time as they exercise the rights. In the case of the Eircom rights they will not have to identify themselves until Tuesday. Yesterday's speculation was based around the proposition that Swisscom was availing of this technicality to anonymously build a stake in the Irish group.

Market watchers were sceptical that anyone intending to bid for the company would go this route. They point out that any buyer has to win over a number of constituencies, and particularly the workers, who hold 21 per cent through the company's employee share option trust (ESOT).

"It's a good way to build a position if you want to launch a hostile bid, but the question here is why?" one said. He argued that it was unlikely that any bidder would move until the Meteor deal has won approval.

Others said they did not believe that there was a deal imminent.

Meanwhile, Deutsche Bank was highlighted as a possible adviser to a bidder for Eircom. Market reports say the bank's analysts have been restricted from commentary on Eircom, but Deutsche itself did not confirm this.

It would be usual for a bank to restrict its analysts from commenting on a particular company if another part of the bank was advising on a bid for that company. Restrictions could also be applied in some other circumstances, however.

Deutsche does not act as an adviser to Swisscom, although it has acted for German player, Deutsche Telekom.