Shares in Irish Life & Permanent (IL&P) rose by more than 3 per cent yesterday, lifted by talk of further consolidation in the European insurance sector following Aviva's bid for Prudential.

Shares in the Irish life assurance group surged by 5 per cent in early trade before falling later in the day to close at €18.75, a gain of 55 cent, or 3 per cent.

"In the midst of this merger activity, IL&P's size could put it on the acquisition radar, given investors will be trawling the sector for takeover targets," Goodbody Stockbrokers noted.

Meanwhile, shares in Prudential, Britain's second-biggest insurer, rose more than 13 percent as speculation grew that Aviva would improve its bid or that a counter-bidder might emerge. Earlier, Prudential had reaffirmed its opposition to a deal that would be the insurance industry's biggest ever, saying Aviva's all-share proposal did not reflect its growth prospects.

But Aviva chief executive Richard Harvey said it was not working on sweetening its proposal, which would create the world's fifth-biggest insurer, worth about £36 billion (€52 billion).

"We're certainly not in the process of entering into revised offers," he said. "We're clear this is the proposal that was on the table. It's been rejected by Pru's board, and it's really for their shareholders and ours to indicate if they would prefer for the arrangement to go ahead."

Aviva also ruled out a hostile bid for Prudential, saying it hoped investors would persuade its rival to reconsider its £17 billion offer proposal. Last year, Aviva, Britain's biggest insurer, reached a joint venture agreement with AIB, which saw it acquire a 75 per cent share of Ark Life, AIB's life assurance unit.