Fresh rumours are abounding about a potential merger between cereal giants Kellogg and Chicago-based Quaker Oats, prompting both negative scepticism from industry analysts and positive performances on the stock market.

"The rumour is back," confirmed Eric Katzman, food industry analyst at Merrill Lynch.

Industry speculation was last excited in June when PaineWebber released a report stating that Michigan-based Kellogg would like to buy Quaker for about US$90 a share. Earlier in January, the companies retained the bankers Morgan Stanley Dean Witter and Goldman Sachs respectively but the merger did not progress.

David Nelson of Credit Suisse First Boston said: "there are rumours about Kellogg getting together with OAT. It wouldn't surprise me at all. Kellogg has to do something transformative to get itself out of a rut." And a merger would help by producing synergies in the convenience food segment: Kellogg's Pop-Tarts, Rice Krispie Treats and Nutri-Grain bars being placed with Quaker's cereal bars.

John O'Neil, a PaineWebber analyst added, "Kellogg could comfortably strengthen its cereal portfolio with Captain Crunch and Life and reduce its reliance on cereals because of Quaker's Gatorade from half to one-third of sales."

Statements from the companies involved are guarded, however: spokesmen cited company policy and declined to comment. Quaker's chairman, president and CEO, Robert Morrison, announced at Thursday's Prudential Securities conference that he was confident his company could continue to go it alone. Simultaneously the company was actively buying its own stock.

Bankers are sceptical, suggesting that Quaker will only look for a buyer once Phillip Morris Cos and Unilever NV have completed their latest acquisitions.

Yet while the rumour is unquantifiable, stock market analysts have calculated a rise of 7.5% rise in Quaker Oats stock to US$72.68, and a 7.6% augmentation of Kellogg's price to US$24.75. This activity seems to be entirely prompted by the latest rumour, but as Katzman commented, it des seem a little odd that both companies' shares are reacting positively: "Why would both stocks be up if one were buying the other? That's not normal. That would not happen."

The two companies have a combined market value of US$19bn.