Hopes for further consolidation in the retail sector are growing after entrepreneur Tom Hunter upped his stake in Allders.

Mr Hunter is stalking House of Fraser but on Thursday paid £162,825 for 975,000 shares, taking his recently-acquired one per cent stake in Allders up to 2.8 per cent.

The move came as the Croydon-based department store recommended shareholders back a £158.3 million takeover offer and the timing kick-started the City rumour mill.

Some believe he is upping the stake before launching a counter-bid while others feel it is part of a plan by Mr Hunter to merge Allders with House of Fraser, should he be successful in winning control of the group.

A spokeswoman hinted that a merger was Mr Hunter's preferred course of action.

"He just wants to keep his options open," she said, adding that an all-out bid for Allders had not been ruled out by Mr Hunter.

But she said of a possible merger: "That is more along the lines of what could eventually, realistically, happen."

The last few months have been notable for a spate of key deals in the retail sector involving a select band of industry veterans.

Bhs billionaire Philip Green spent £850 million taking Top Shop chain Arcadia private while his former chief executive Terry Green was linked to baby group Mothercare.

That came to nothing, however, and Mr Green is now involved with Scarlett Retail, which is bidding for Allders.

Scarlett is owned by property group Minerva, City firm Lehman Brothers, Mr Green and fellow retail veteran Phil Cox.

Mr Hunter, who made his fortune after selling his Sports Division chain to JJB Sports in 1998, approached House of Fraser earlier this month.

His indicative £196.9 million offer was rebuffed but he remains hopeful a deal will be struck when talks resume after the crucial festive period.