A bankrupt steel firm is the target of a buyout by International Steel Group (ISG), signalling further consolidation among US steel makers who are burdened by overcapacity.

The troubles of the US steel industry led President George W Bush to introduce tariffs against imported steel earlier this year - leading to a potential trade war with Europe.

ISG said on Tuesday it is considering the purchase of Pennsylvania-based Bethlehem Steel, which is currently operating under the protection of US bankruptcy law.

We are hopeful that the combination of ISG and Bethlehem could be an important step in the right direction

Leo Gerard, president, USWA

ISG has been granted 60 days to examine Bethlehem's plants and accounts in order to help the acquiring firm prepare an offer.

"We will try to determine quickly the extent to which Bethlehem's facilities complement ours as well as the potential for cost saving..." said Rodney Mott, chief executive at ISG.

If the deal succeeds, it would be another feather in the cap of W L Ross & Co, the buyout firm that has led consolidation within the US steel industry.

Loss maker

Like many heavy-industries, the US steel sector is beset with pension expenses and high health-care costs.

Such weighty liabilities have contributed to more than 30 US steel firms having filed for bankruptcy since 1997.

In addition to pensions and health-care costs, Bethlehem has been weighed down by high costs to maintain some of its old-fashioned plants.

It reported on Monday it lost $13.5m (�8.6m) in September.

The firm has two major plants, in Burns Harbor, Indiana, and in Maryland.

Bethlehem, once a pre-eminent US steel manufacturer, filed Chapter 11 bankruptcy in October 2001.

Union support

Steel-consolidator Ross bought ailing Cleveland-based LTV Steel earlier this year, renaming it International Steel, and then purchased Acme Steel, which ceased operations last year.

If it acquires Bethlehem, the firm will become the nation's largest integrated steel firm, with the capacity to produce 20 million tonnes of steel a year.

United Steelworkers of America, the union representing steel labourers, said it was encouraged by the talks.

"Our union has always supported a strong, consolidated American steel industry," said union president Leo Gerard.

"And we are hopeful that the combination of ISG and Bethlehem could be an important step in the right direction," he said.