France has begun investigating rumours of a bid by PepsiCo for Danone, which sent shares in the food group rallying and gripped both shareholders and politicians, according to the Reuters news agency.

Fears that a foreign company might acquire Danone, a French industrial champion that employs nearly 90,000 workers, have rocked the political establishment, with President Jacques Chirac vowing to defend the company's independence, Reuters said.

France's AMF market regulator said its investigation would focus on Danone's recent share price movement and on information released about the company in recent weeks.

Danone said it would co-operate fully with the inquiry.

"This is logical and we will, of course, answer all the questions that the AMF will ask," a Danone spokesman told Reuters.

PepsiCo said it did not comment on rumours. "When asked recently by the AMF, we confirmed that we are in compliance with all French laws and regulations," said Mark Dollins, a Pepsi spokesman.

The AMF market regulator said earlier this week that the US soft drink maker had denied it would launch an offer, causing Danone to lose around €2bn ($2.4bn) of stock market value on Monday.

However, bid rumours continued as traders questioned whether Pepsi had actually renounced a bid attempt when it said it was complying with French laws and the Financial Times reported that Pepsi had not mentioned Danone in discussions with the AMF.

"It's a complex story, but the fact of the matter is that the bid speculation has not been killed off, contrary to what people said yesterday," a trader at a Paris brokerage said.  

French politician Patrick Ollier told radio station Europe 1 that he was not entirely convinced by Pepsi's denial, and French newspaper La Tribune reported that Danone was looking to bring in banking group Credit Agricole as a major shareholder to help fend off any future bid attempts.