French politicians have vowed to defend Danone

"PepsiCo have indicated to us that they are not planning a bid on Danone," a spokeswoman for the Autorite des Marches Financiers (AMF) said.

President Jacques Chirac last week joined the slew of French politicians vowing to defend Danone's independence.

Danone's shares have risen nearly 20% on bid speculation in recent days.

The firm's shares fell by as much as 9% before closing 7.5% lower at 81.8 euros on Monday after AMF confirmed a report in Les Echoes newspaper that PepsiCo was not planning to bid.

Political storm

AMF reportedly sounded out PepsiCo and other potential bidders for dairy food group Danone about their intentions last week, amid a wave of political hostility to a foreign bid.

President Jacques Chirac weighed in, saying France's priority was "to defend its industrial competitiveness and the strength of its businesses".

He was joined by Prime Minister Dominique de Villepin, Finance Minister Thierry Breton, and the ambitious Interior Minister Nicolas Sarkozy, who is widely seen as a presidential hopeful.

AMF said on Monday it was considering a request from a small shareholders association for an inquiry into whether the share price has been manipulated.

'No approach'

Danone president Franck Riboud acknowledged last week that his company had not actually received an approach from PepsiCo, though he believed there was a serious possibility of a bid.

"There's been nothing, whether close contact or distant, formal or informal," Mr Riboud told Les Echoes in an interview on 21 July.

PepsiCo has consistently declined to respond on the bid rumours, and has not commented on the latest developments.

Danone's best known products are its yoghurts, Evian mineral water and Lu biscuits. Last month, it sold off UK-based sauce maker HP Foods to US food giant Heinz for �470m.

Danone last week posted first-half operating profits of 857m euros (�598m; $1.04bn), up from 820m euros during the same period last year.