The shares jumped 29% to a record high of 1136 pence by mid-afternoon on the back of Nasdaq's 950-pence-a-share bid and following a statement from Threadneedle Investments, the biggest shareholder in the LSE with a 13.8% stake, saying that it would be willing to negotiate with potential bidders for the UK exchange.

The LSE rejected Nasdaq's bid on Friday, stating that the "unsolicited" proposal "substantially undervalues the company".

LSE shares have rocketed since Deutsche Börse made an offer for the UK exchange in December 2004. At that time the stock was trading 430 pence, but the price has continued to rise on the back of continual takeover talk. The shares had closed at 880 pence on Friday just prior LSE's statement on the Nasdaq bid, but soared this morning on renewed speculation of a transatlantic merger.

Market analysts have implied that the highest Nasdaq can go without cutting into next year's earnings is 1100 pence. The LSE's rising share price has led to speculation that Nasdaq's offer for the UK exchange may spark a bidding war with the New York Stock Exchange, which is rumoured to be talking with advisors about mounting a rival bid.

Analysts say a transatlantic deal could also accelerate consolidation between rival exchanges such as Deutsche Börse and Euronext - news of Nasdaq's bid for LSE also pushed up shares in those two exchanges to new highs.

Euronext, which has been in talks with the LSE for well over a year, is expected to concede defeat in the battle for the UK stock market operator following the bid from Nasdaq. The pan-European exchange has never disclosed the price it would be willing to pay but is expected to admit that it cannot match Nasdaq's cash offer. Euronext is also under pressure from its own shareholders to pursue merger talks with European rival Deutsche Börse.