Sainsbury's and Asda owner Wal-Mart are reportedly considering a joint bid for supermarket chain Safeway in an attempt to trump the �2.9bn offer of their regional rival Morrisons.

Annual turnover - latest available figures

Tesco: �21.7bn Sainsbury: �14.9bn Safeway/Morrisons: �12.6bn Asda: �10bn

According to the Times newspaper the joint bid would see Wal-Mart take three-quarters of Safeway's 470 stores, and Sainsbury's would get the rest.

Asda and Sainsbury would not comment on the speculation, but on the London stock market Safeway's shares were up nearly 6% by Friday lunchtime as investors relished the prospect of a bidding war.

But analysts warned that any rival offer from such supermarket giants was likely to attract interest from regulators.

"Competition authorities would have a very close look at this," said Alex Scott of Seven Investment Management.

"The main concern would be the impact on suppliers, farmers and producers that another concentration of power in the top three would bring about."

The battle for market share

Morrisons is the country's fast-growing supermarket chain but focused on the North of England. The company surprised the market on Thursday by announcing an agreed takeover offer for Safeway, in a deal worth �2.9bn.

The combined firm, with 598 stores, a turnover of �12.6bn and a market share of 16% would hope to be able to compete with Asda, Sainsbury and Tesco.

With Morrisons strong in northern England, and Safeway focused on Scotland and the South, the two firms say their operations will be complementary.

Both chains have been relatively successful in recent years, but the supermarket sector is suffering from low margins and fears that consumer spending growth is slowing.

Analysts say Sainsbury's may be forced into entering the battle as it has been losing ground to rivals in recent years.