OSLO (Reuters) - Shares in oil tanker group Frontline leapt as much as 10.5 percent yesterday after the Norwegian company and its main owner took a 5.2 percent stake in Overseas Shipholding Group (OSG), sparking takeover speculation.

Chief executive Bjoern Sjaastad declined to comment on Frontline's plans for its OSG holdings and stuck to the wording of Frontline's March 20 statement that the group was interested in talks with OSG to create shareholder value.

"Frontline and group companies view both these holdings as good financial value investments, but reserve the right to be in contact with management and other shareholders of OSG regarding alternatives that OSG could employ to enhance shareholder value," Frontline Ltd. said in that statement.

Frontline announced last week in a filing to US regulators that it and firms directly controlled by its main shareholder, John Fredriksen, bought a 5.2 percent stake in OSG and a forward contract on 4.4 percent more.

Analysts and Norwegian media said Frontline and Fredriksen could be preparing a takeover offer for OSG, but Mr. Sjaastad would not confirm or deny that.

"It's always interesting to consolidate the tanker sector," Mr. Sjaastad told Reuters.

After setting a new four-week high of 239.75 crowns, Frontline shares cooled off to 232.50 crowns by 10.02 GMT, still up 7.1 percent and valuing Frontline at about $3.29 billion.

First Securities shipping analyst Bjoern Knudsen said the share rose on "Fredriksen positioning himself towards OSG and accumulating a position."

"One might foresee that the two companies would be merged," Mr. Knudsen said.

Frontline would obtain nearly 10 percent of OSG if it exercised its forward contract.

"If Frontline should decide to take delivery of the shares under the forward contract, the company and the group of companies will control 9.6 percent ownership in OSG," Frontline Ltd. said in a statement over the five-day Easter holiday in Norway where Frontline has its main bourse listing.

Bermuda-registered Frontline said the investment in New York-based OSG was good value and would boost its diversification in the shipping markets without significantly reducing its near- and medium-term capacity to pay dividends.

"The joint investment also reflects the fact that only approximately 41 percent of OSG's total fleet in terms of number of vessels is exposed to the market for crude oil transportation, which is Frontline's core market," it said.

Norwegian business daily Dagens Naeringsliv cited anonymous sources as saying Fredriksen and associates would consider making a cash offer for more OSG stock to major shareholders with the aim of merging OSG's fleet with Frontline's.

Dagens Naeringsliv said a possible takeover bid for OSG would be financed with an issue of Frontline shares.

Mr. Sjaastad gave no comment on those aspects of the report.

Norwegian Frontline, the world's biggest independent oil tanker company, gave no value for the share purchases.

But at OSG's closing price of $61.47 per share on March 19, the day before Frontline's filing to the US Securities and Exchange Commission, 1.68 million shares would have been worth $100 million.

OSG shares have risen 20 percent over the past week, and closed up 1.9 percent on Monday at $69.52.