The companies declined to offer details other than to say a merger would lead to a return of capital to British Steel's shareholders. They said an announcement about any possible deal would be made no later than Monday. Shares of British Steel jumped 28 pence to 161.75 pence ($2.60). Shares of Hoogovens edged up only 20 European cents to 37.90 euros ($39.61) in Amsterdam. Trading in Hoogovens's shares had been halted just before the announcement of merger talks.

Analysts cheered the possibility of a Pan-European steelmaker, saying that the Anglo-Dutch merger would represent a watershed for consolidation in a European industry that is burdened by overcapacity and destructive price competition.

``This is a pretty major move,'' said Paul Compton, a steel analyst at Merrill Lynch GlobalSecurities. For a decade, European steelmakers have talked about the need for consolidation, but so far steel mergers have occurred between companies in the same country. Steelmakers have so far been ``too nationalistic,'' Compton said.

If British Steel indeed reaches an agreement with Hoogovens, ``this would be like a dam breaking,'' said Compton, who thinks more cross-border steel mergers could follow. In a region where at least seven countries -- from France and Germany to Belgium and Luxembourg -- have national steel champions, ``consolidation is certainly justified,'' he said. British Steel is by far the larger of the two companies, with a market capitalization of about 2.65 billion pounds ($4.27 billion), dwarfing Hoogovens's 1.4 billion euros ($1.46 billion), equivalent to 900 million pounds. Analysts are betting the companies strike a deal. ``It is very likely,'' said Erik Sardain, an analyst at Dresdner Kleinwort Benson. Sardain said British Steel, which employs about 40,000 people in its homecountry, should benefit from the cost reductions of a merger.

--The Wall Street Journal