Speculation regarding Caffe Nero's interest in coffee bar rival Coffee Republic remained on the boil after it upped its stake in the group.

Coffee Republic said Caffe Nero had built its shareholding up to 10.69 per cent - some 24 million shares - just two days after taking an initial 4.32 per cent stake.

Both parties refused to comment on the latest move, which fuelled speculation among analysts that a bid for Coffee Republic may be imminent.

It said it had received a takeover approach from an unnamed party, which may or may not lead to an outright offer.

Coffee Republic saw its shares plunge to just 2.25p last week after reporting spiralling losses and calling a halt to its expansion programme.

Earlier this year, Coffee Republic took over Brighton-based Good Bean.

But they rose 38 per cent on Tuesday after the group revealed Caffe Nero had bought its initial stake.

They were down 0.5p to 4.25p yesterday afternoon Sources close to Caffe Nero insist the stock purchases are an investment given the fall in Coffee Republic's share price from 13.5p year ago.

Speculative investors have been building up stakes in Coffee Republic in the hope of sector consolidation.

Growth rates in the market have slowed as smaller players jostle for position behind dominant players Starbucks and Costa Coffee.

Richer Sounds founder Julian Richer has built up a 16 per cent shareholding in Coffee Republic while entrepreneur David Abell has also taken a stake.

Caffe Nero bought 26 Aroma coffee bars from fast food giant McDonalds earlier this year in a deal the City viewed as a largely defensive move.