TELECOMS giants British Telecom and AT&T are in merger talks which could create a £250bn telecoms behemoth.

BT chief executive Sir Peter Bonfield is believed to have discussed the tie-up on an informal basis with the US group's chairman, Michael Armstrong.

BT shares traded strongly throughout the day on the Stock Market. At the close they were up 25p at 837p.

A report in the Wall Street Journal added that the two companies had held discussions regarding a tie-up during their regular meetings about their Concert data services joint-venture.

Sir Peter is reported as saying he is "very open-minded" about the possibility of a merger.

But a spokesman for BT yesterday dismissed the tie-up as "pure speculation".

However, analysts said the deal would be a logical as the two groups keep pace in the fast moving telecoms sector.

John Tysoe, telecoms analyst at West LB Panmure, said a tie-up would come as no surprise.

He added: "In a recent presentation to clients I said the first quarter-of-a-trillion pound telecoms merger would occur in the next two years.

"The two are already a dominant force in voice services but they are not the leading force in either data or mobile services."

Mr Tysoe said that even if a merger did occur that would not be the end of the telecoms consolidation process.

BT could link up with European telecoms rival Telefonica before then going on to approach AT&T in what would then be a "merger of equals".

He said the combined group would "set a big challenge to the rest of the industry" but doubted whether a merger would fall foul of regulatory hurdles.

Other analysts said the deal would be good news for BT, which is struggling under the weight of around £30bn debt.

Jeremy Batstone of NatWest Stockbrokers said: "BT has got to try and address its debt mountain. We would welcome a tie-up because shareholders have had the short end of the wedge."