Deutsche Telekom and its majority-owned subsidiary, T-Online, yesterday proved that silence can be golden when their refusal to deny rumours that the latter is preparing a £6.5bn bid for Freeserve prompted a 24% surge in the internet service provider's share price.

Dealers returned to their desks in London after the bank holiday weekend to find Freeserve shares marked up sharply on speculation that a 650p per share bid from Germany's largest internet outfit was imminent.

Although both German companies refused to comment on the reports, Deutsche senior vice-president Thomas Winkler added fuel to the fire by confirming that T-Online was searching for acquisitions, saying: "We are not a sitting duck - we want to take active part in the consolidation process."

Freeserve has been the centre of intense takeover speculation since the start of this month, when it was revealed that retailer Dixons had appointed investment bank Goldman Sachs to review the future of its 80% holding in the company.

Analysts believe that Freeserve -the only leading domestic European internet service provider not owned by a telecoms company - is most likely to be sold to the Deutsche-backed T-Online.

Cable company NTL, British Telecommunications and Energis have both been mentioned as possible counter-bidders but T-Online is seen as favourite to strike a deal.

Peter Misek, an internet analyst at Chase H&Q, said a deal between Freeserve and T-Online would give both a much needed pan-European presence, generate significant cost savings across a number of technology platforms and allow the combine a critical mass of users. "It's a deal that makes a lot of sense," he said.

Analysts believe that BT, which also recently announced a restructuring, is seen as having enough to do without entering an auction for Freeserve, while it is unclear whether NTL shareholders would be prepared to fund such a large bid.

Dixons has promised not to sell any of its shares before June 27 - Freeserve's first anniversary as a public company and the date that it reports its full-year results. But observers believe the stock exchange may be ready to wave through a bid before then, providing it represents a healthy premium for Freeserve shareholders.

Although Freeserve shares have traded as high as 950p this year they tumbled in the sell-off of tech stocks. Analysts believe that a bid of about 650p could secure a deal in light of recent turbulence. Last night Freeserve shares closed up 95p at 487p, with Dixons shares up 28.5p at 302p.