Investors and markets will be watching Mr Monti closely

The comments by the EU's competition commissioner Mario Monti come as regulators mull over whether to approve Spanish bank Santander's move.

A decision is expected by 17 September on what would be Europe's largest cross-border banking merger.

According to weekend press reports, UK bank HBOS is considering a rival bid.

Controversy?

Mr Monti, however, appeared to give his backing to Santander's move.

"It is one of the first cross-border transactions in the banking sector, and it will increase the integration of the common market and that of the financial services," Mr Monti told reporters in Italy over the weekend.

"At first glance, it is a contribution to the objective of the Commission of having a more integrated financial services market."

According the Independent, a UK newspaper, the comments have angered HBOS, which called them "inappropriate".

"If Mr Monti made this remark, it is a worrying development. The (European) Commission has yet to make any decision about about the proposed deal by Santander for Abbey," the Financial Times cited an HBOS spokesperson as saying.

HBOS is expected to decide this week whether it will table a bid for Abbey, the Sunday Telegraph reported the previous day.

Newspaper speculation suggests that an offer from HBOS will be around �10bn - more than Santander's �8.6bn. HBOS has refused to comment on the claims.

Ploughing on

If HBOS does decide to make an offer for Abbey it will have to move quickly.

An Abbey-Santander merger will create the world's 8th biggest bank

Abbey is expected to post the Spanish bank's bid document to shareholders next week, while Santander has said it wants to complete the deal by November rather than the end of the year.

The main hurdle to any Abbey bid is likely to prove the UK, rather than European, competition watchdog, analysts said.

Three years ago, Lloyds TSB launched a high-profile bid for Abbey, but was blocked on competition grounds.

Buying Abbey is seen as the last major merger opportunity within the UK banking sector, which has undergone a wave of consolidation in the past 10 years.

Cut backs

Under the terms of Santander's offer, any prospective rival bidders have until Abbey's extraordinary general meeting in October to state their intention to table an offer.

Santander is using a scheme of arrangement to bid for the bank, as just 75% of Abbey's shareholders need to agree the deal for Santander to win total control of Abbey.

A normal offer could require 90% approval from shareholders.

Santander has said its takeover would trigger just 3,000 job losses amid the UK bank's 26,000 employees, mainly because it does not intend to close any branches.

However, reports claim that if HBOS wins out many High Street branches would disappear as they are located too close to the 741 sites owned by Abbey.