Bank of America-Merrill Lynch has stoked speculation of a BHP Billiton bid for PotashCorp by saying that a deal could make financial sense and would win investor approval.

PotashCorp shares leapt nearly 6% in Toronto, with stock in rivals higher too, continuing an October recovery for the sector.

A note from BoA-ML analysts said that should BHP buy PotashCorp at a 30% premium, valuing the Canadian fertilizer group's shares at about US$39bn, the deal would boost earnings per share by 13% in the first and second years after the acquisition.

The report added: "From discussions with clients during recent marketing we believe the market is receptive to BHP acquiring potash assets and accepts the logic that, if acquired, Potash would be a sensible addition to BHP's portfolio."

'Magnificent asset'

The comments come amid renewed rumours that BHP, which is sitting on more than $10bn of cash, is looking at a PotashCorp acquisition as a way of beefing up in the potash market.

"We think it's a magnificent asset," Marius Kloppers, the BHP chief executive, told analysts in August.

The site is estimated to have the potential to produce 8m tonnes of potash for 50 years following its commercial launch, which would not be expected for another 10 years or so.

Prices slide

PotashCorp the world's biggest potash group, would come with capacity estimated at 18m tonnes by 2012.

BHP is also thought to be US-based Mosaic as an alternative target, although a deal would depend on Cargill, which owns 64% of the fertilizer giant.

The resurfacing of takeover rumours has helped a 10% rebound in PotashCorp shares from a seven-month low hit earlier this month on waning hopes for potash prices.

Potash prices, which groups had hoped to hold above $700 a tonne, have fallen below $500 a tonne after the nutrient was viewed by farmers as a prime target for cost cuts when crop prices fell from last year's highs.

Talks of sector deals has also boosted stock in other potash groups, with Uralkali shares up more than 17% this month.