Supermarket giant Sainsbury's gatecrashed rival Morrison's agreed takeover of Safeway with details of a bumper £3.2 billion bid.
The group said it was considering an offer of at least 300p per share in a move that is certain to spark a bidding war.
Analysts believe Asda, backed by the might of its US owner Wal-Mart, will now declare its hand and trump both bids currently on the table.
The mounting speculation was enough to push Safeway shares up and its market value has soared 37 per cent in under a week.
Sainsbury's chief executive Sir Peter Davis, said the group had been looking at making an offer for Safeway for the past year to 18 months.
A deal is also critical to safeguard Sainsbury's future role in a market that will be altered dramatically by Safeway's decision to sell up.
Morrison's £2.9 billion all-share deal for Safeway would catapult the enlarged business to number three in the market.
It would also mean Sainsbury's missing out on what is likely to be the last acquisition opportunity in the UK supermarket sector.
A deal between Sainsbury's and Safeway, the fourth-largest group in the market, would instead create a business to rival leader Tesco.
While Sainsbury's said it would have to sell 90 of Safeway's stores to satisfy competition authorities, the combined group would still have 870 sites.
An Asda spokesman also refused to clarify its own position but some believe it could launch a bid in the City tomorrow.
Iain McDonald, retail analyst at Numis Securities, said he was convinced the US group will win Safeway as it has the "deepest pockets".
He said: "Asda Wal-Mart has yet to declare its hand but I find any other result hard to envisage."
Sir Peter returned to Sainsbury three years ago to revive the business.
A Christmas trading statement showed sales rose by 2.8 per cent on a like-for-like basis in the 12 weeks to January 4.
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