Matalan is the latest UK retailer to attract attention from suitors

Shares in the firm - which has been hit by sliding sales - gained more than 6%, valuing it at about �905m ($1.6bn).

Matalan suffered problems with its womenswear range last summer, and is feeling the pinch of increased competition from supermarkets.

A spokeswoman for Matalan declined to comment on the takeover speculation.

Wal-Mart also refused to comment on the market rumour.

The US company, owner of the UK's Asda supermarket chain, has been accused in the past of forcing small shops out of business, and of underpaying its staff.

Lee Scott, chief executive of Wal-Mart, recently defended his company's record in an interview with the BBC.

"There is no evidence that we in fact kill off companies," he told BBC business editor Jeff Randall.

Out of favour

Meanwhile, Matalan has been struggling over the past year, with profits halving after what it described as a "disappointing" year.

Pre-tax profits sank to �60.7m ($108.6m) for the year to 28 February 2004, compared with �117.4m the year before.

Matalan was one of the big retail success stories of the late 1990s, but in recent years it has fallen out of favour.

As well as problems with its clothing ranges, the firm has been hit by boardroom clashes.

Chief executive Paul Mason stepped down unexpectedly in March 2003 following disagreements with other senior managers.

Analysts say chairman John Hargreaves, who controls 52% of the stock, may demand up to 300 pence per share for his holdings in any takeover situation.

But market rumours were centred around a possible 260 pence per share bid from Wal-Mart.