SBC has already sucked up several rivals in recent years

Neither firm wanted to comment on the reports, published by several news agencies and newspapers.

But Wall Street responded, pushing AT&T's stock up 6.2% while SBC's slipped 3.7% by 1700 GMT.

Should it come about, the move would see AT&T - once a US telecoms monopoly - disappear into a firm spun off from it by antitrust officials in 1984.

Second time lucky?

Opinion remains split over whether the move would be a good idea for either firm.

AT&T remains a long-distance telecoms firm, while SBC is predominantly focused on the local market in the western US.

Each has a sizable presence in data networks as well.

MARKET VALUES AT&T: $15.6bn SBC: $79.9bn Verizon: $99.7bn BellSouth: $49.9bn SBC, Verizon and BellSouth are the three firms remaining from mergers of the "Baby Bells" spun off from AT&T in 1984

AT&T tried to merge with BellSouth, another of its local-market offshoots, in 2003.

But the former monopoly's shrinking business drove BellSouth away, and now any deal would be far from a merger of equals.

Business options

Still, AT&T remains a favourite with big businesses, which would be a prize for SBC - as would the ability to sell business communication packages without having to buy in long-distance and international services from other providers.

Consolidation in the US phone business is already extensive, with the seven "Baby Bells" split off from AT&T in 1984 now reduced to three.

The merger talk remains "very, very sensitive", according to reports, and could still easily collapse.

Consumer groups were unhappy about the possible deal.