Banking giant Abbey National is at the centre of speculation linking it to a takeover bid from Australia's biggest bank.

The National Australia Bank (NAB) is thought to be in the early stages of putting together a swoop for Britain's sixth largest bank.

Advisers for both sides are believed to have held exploratory talks, with NAB discussing the matter with its investment bank Goldman Sachs.

Neither bank has commented on the speculation.

The rumours were strong enough to send Abbey's shares four per cent higher in a depressed market.

NAB already has a UK presence with the Clydesdale, Yorkshire and Northern Banks but could quadruple its customer base in the UK and Ireland to 20 million through the merger.

National Irish Bank is also part of its portfolio.

Abbey, which issued a shock profits warning earlier this month, has been increasingly seen in the City as a takeover target.

The UK group's share price has fallen from a high this year of £11.32 to 826p and under-pressure chief executive Ian Harley is reported to have said the bank is a "sitting duck".

NAB has made no secret of its aims to expand in the UK and has been tipped in the past to bid for banks such as the Alliance and Leicester.

The Melbourne-based operation was recently listed as the world's 20th largest financial services company in terms of profitability.

It has more than eight million banking customers and nearly three million wealth management clients.

Speculation linking the pair first surfaced last month when it was reported that UK-based executives at NAB were told to prepare for a major due-diligence project, an analysis of a company's books prior to a deal.

The depressed state of the market has led SABMiller, the world's second biggest brewer, to withdraw a share issue planned to raise more than £600 million for acquisitions.