Shares in AIB gained nearly 1.6 per cent yesterday on foot of speculation that it may be a bid target for Spain's largest bank.

According to a report in yesterday's Financial Times, Santander is ready to return to the acquisition trail less than two years after its acquisition of British mortgage bank Abbey National.

The report said Santander is understood to have looked at Alliance & Leicester, the former building society, but AIB is also thought to be under consideration.

A spokesman for AIB declined to comment on what he described as "just speculation". But shares in the bank gained 2 per cent in early trade before later giving up some ground to close 30 cent, or nearly 1.6 per cent, higher at €19.20. However, dealers noted that volume in the stock was relatively light.

Analysts expressed little surprise that the wave of takeover speculation that has lifted European banking shares had at last spread to Ireland. "We suppose someone somewhere will now link Bank of Ireland to someone else as well," Goodbody banking analyst Eamonn Hughes noted.

Opinion was mixed, however, on whether AIB would be a good fit for Santander. "If, as the article suggests, Santander is keen to find a bolt-on for Abbey, AIB is not the obvious choice, but M&A (merger and acquisitions) is a hot topic presently and the speculation is inevitably going to extend to the Irish banks," Davy Stockbrokers said yesterday.

Mr Hughes noted that AIB's stake in US bank M&T would be attractive to Santander, given its recent move on Sovereign in the northeast of the US, while AIB's Polish operation would give the Spanish bank exposure to eastern Europe.