LONDON Shares in British lender HBOS HBOS.L rose more than 12 percent on Wednesday, lifted by market talk of bid interest from Spanish rival BBVA (BBVA.MC) and a broad recovery across the financial sector, traders said.
"There is a suggestion BBVA may be looking at HBOS," one trader said, adding this was helping HBOS shares track higher.
Several other traders also quoted the market rumour.
Both BBVA and HBOS declined to comment.
HBOS shares were trading up 10.6 percent at 288.8 pence at 1042 GMT, beating the FTSE bluechip index, up 1.3 percent, and topping the day's gainers.
Britain's largest mortgage lender has underperformed the battered sector in the run-up to its 4 billion pound ($8 billion) rights issue, and concerns over the overhang effect have also weighed, as just 8.3 percent of the shares were taken up.
BBVA shares were up 3.5 percent at 12.35 euros and the DJ Stoxx European banking sector index .SX7P was up 4.6 percent.
A deal to take on HBOS would be a radical departure for BBVA, Spain's second-largest bank, which has focused its expansion on emerging markets in Latin America and China and in the southern United States.
Chairman Francisco Gonzalez has said he would be interested in growing further in the United States once the market settles a bit and BBVA fully merges the four banks it bought there.
He has also said he would like to get into business in expanding markets like Russia and Brazil but possibly by offering services via the Internet rather than by buying banks to get a physical foothold.
At Wednesday's prices, HBOS was worth about 15 billion pounds ($30 billion) while BBVA was valued at 46.3 billion euros ($73.7 billion).
(Additional reporting by Jane Barrett in Madrid and Clara Ferrera-Marques in London)
(Reporting by Sitaraman Shankar and Michael Taylor; Editing by David Cowell)