BP Amoco of Britain said yesterday it was in takeover talks with Atlantic Richfield (ARCO), the seventh-biggest US oil company, and analysts saw the deal - rumoured to be worth (€23.3 billion) - as a bold step which could bring big cost savings.

Although the two companies confirmed in a statement that they were "in discussions concerning a possible combination transaction", they also underlined that "no definitive agreement has been reached".

Investors reacted positively to the news, driving BP Amoco shares up 53p, or 4.6 per cent, to £10.90 a share.

Analysts warned that there might be regulatory pitfalls should the deal result in heavy job cuts, coming on top of the redundancies announced after the BP and Amoco tie-up.

There was also concern about BP Amoco overstretching its management structure.