Shares in Alliance & Leicester soared as much as 16 per cent higher today after it emerged that the UK mortgage lender had held aborted takeover talks with Banco Santander last month and the Spanish bank had left the door open for a return to the negotiating table.

It is believed that the UK's Takeover Panel has been in contact with both parties to determine whether they should clarify their positions with a formal statement to their investors in the stock market.

A&L is understood to be considering whether to issue a clarfication for its shareholders.

Having opened almost 8 per cent higher, shares raced as much as 107p ahead, taking A&L to an immediate year high of 755p, a gain of more than 16.5 per cent.

The bid frenzy, amid heavy trading volumes, added more than £400 million to the bank's market value. Last night, A&L was valued at £2.7 billion.

It came as analysts said the mortgage bank's weak share price in recent months has made it an attractive target for a predator. Santander, the owner of the Abbey mortgage banks in the UK, has been linked with a prospective bid for A&L for the past 18 months.

Speculation also arose last year that Credit Agricole, the French bank, had lined up a bid for the UK's seventh-largest banking group of about £12 a share, £6.5 billion.

Andy Penman, an analyst at Barclays Wealth, said there was "significant logic" to a deal between A&L and Santander.

"The main difference now is that the substantial IT investment that Santander had to carry out at Abbey National is largely complete, which means full attention can be paid to the cost-synergy-led deal if it were to acquire A&L in 2008," he said.

Mr Penman sad A&L could continue to be hindered domestically by its lack of scale.

Sources said talks between A&L and Santander, which most recently took place last month, are not active, but Santander has not ruled out a return to the negotiating table.

An acquisition could help the Spanish bank to expand its branch network. It said recently that it aimed to have 300 more Abbey branches in the UK by 2012, taking the total number to 1,005.

The interest in A&L from Santander follows concerns that the smaller mortgage banks could face funding issues as a result of the credit crunch and the downfall of Northern Rock.

In November, A&L turned to Credit Suisse, the Swiss banking giant, for a £4 billion cash injection. The loan helped to temper an unexpected profits warning and sent a wave of relief through the stock market. The group’s shares soared despite the bank giving warning that operating profits for the full year would come in below £589 million.

Industry sources said that Santander, which has a market value of $136 billion (£68 billion), with assets in Spain and Portugal, Latin America and the UK, would not have been interested in acquiring more assets in Britain before the fall in A&L’s share price.

The Spanish bank has been more focused on expanding its presence in Latin America, doubling its size in Brazil with the acquisition of Banco Real last year.

In the UK, Santander has said it wants Abbey to increase its market share, which is about 9.4 per cent, although this might be difficult in a cooling housing market.

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