Telecom Italia, seeking to quash a hostile take-over bid by Olivetti, confirmed yesterday that it is in talks with Deutsche Telekom on an alliance.

"Telecom Italia is examining the possibility of an industrial alliance with Deutsche Telekom, the details of which are still under study," Telecom said in a brief statement.

Italy's bourse regulator, Consob, had asked Telecom to make an official statement about reports of merger talks before markets opened this morning.

Consob has not yet responded to the statement. A merger between the two companies would be the largest seen and would create a telecommunications giant worth more than $200 billion (€186.96 billion).