UPDATE 1-A&L held takeover talks with Santander -paper

(Adds A&L response, background)

LONDON, Jan 1 (Reuters) - British mortgage bank Alliance & Leicester ALLL.L held tentative takeover talks with Spain's Santander (SAN.MC) early last month, the Daily Telegraph reported on Tuesday without citing any sources.

The newspaper said the talks faltered after the parties failed to agree a price, and that they were understood to no longer be in active discussions.

"We don't comment on market speculation," an A&L spokesman said.

Santander, the euro zone's biggest bank, could not be reached for comment.

However, the Financial Times reported on Monday that Santander, which owns British building society Abbey National, was in talks to buy another UK mortgage lender until the price derailed the discussions.

A&L has been hit by concerns it faces a financing crunch as banks have restricted lending to each other since the summer. In November it said it would take a 55 million pound ($110 million) hit from losses at its Treasury investments, which would reduce its 2007 profit below analyst forecasts at the time.

On Monday, shares in A&L closed at 648 pence, valuing the bank at around 2.7 billion pounds. (Additional reporting by Andrew Hay in Madrid) (Reporting by Mike Elliott)