Shares in British engineering group WS Atkins rally on merger talk

* CH2M approaches Atkins over potential $4 bln merger -the Times

* Deal would help Atkins diversify from the UK - analysts

* Atkins, CH2M decline to comment

* Atkins shares rise 7.9 pct, top FTSE midcap gainer (Adds CH2M's response, details, updates shares)

By Esha Vaish and Parikshit Mishra

Jan 30 (Reuters) - Shares (Berlin: DI6.BE - news) in British engineering and consultancy firm WS Atkins (Frankfurt: 912859 - news) jumped 8 percent on Monday after the Times newspaper reported the group had been approached by U.S. peer CH2M over a possible $4 billion merger.

Atkins has been trying to diversify away from its home market, which accounts for over half of its revenue, by growing its footprint in the United States and Asia.

The Times said that privately owned CH2M made an approach for Atkins at a senior level, although it was unclear how far talks had developed.

A spokeswoman for CH2M said: "The story is purely speculative, and as a matter of policy, we don't comment on rumours or speculation."

An Atkins spokesman also said that the company's policy was to not comment on rumour and speculation.

A merger would follow a trend toward consolidation in the engineering and construction industries globally in the past few years, including a failed attempt by UK company Carillion to merge with rival Balfour Beatty (Other OTC: BAFBF - news) .

Colorado-based CH2M, which has forecast essentially flat revenue for 2016 after it generated $5.4 billion in 2015, has been Atkins' partner on a number of projects, including Crossrail - London's new railway link and the current largest infrastructure project in Europe.

It was also one of the top 100 contractors for the U.S. government in fiscal year 2015, according to official data.

"The consulting industry where people are going global, they have the geography and the skill set, the attractions of CH2M to WS Atkins is infrastructure, which is a growth area," Peel Hunt analyst Chris Bamberry said.

Shares in Atkins, which had a market capitalisation of about 1.4 billion pounds ($1.8 billion) as of Friday's close, were up 6.8 percent at 1,495 pence at 1428 GMT.

At Monday's high of 1,511.22 pence they had recorded their sharpest intraday gain in nearly a year and were the top gainer on London's FTSE midcap index.

Atkins said in November that it expected to benefit from new U.S. President Donald Trump's pledge to increase infrastructure spending in the United States by $1 trillion.

It has been active in acquiring smaller companies and since 2008, about 89 percent of its M&A deals have been in the United (Shenzhen: 000925.SZ - news) States, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

"The rationale is that Atkins continually stated that they'd like to decrease the UK proportion of their group... it'd just be about diversifying the group's activities," Jefferies analyst Sam Cullen said.

M&A activity in the engineering and construction sector globally rose 23 percent last year by total deal volume as buyers remained active with smaller or niche acquisitions, according to accountancy firm PwC.

"We see upside in the U.S. with potential legislation around infrastructure spend and corporate tax reform increasing interest in U.S. assets both domestically and inbound from buyers looking for growth," PwC said in its report. ($1 = 0.7996 pounds)

(Reporting by Parikshit Mishra in Bengaluru; Editing by Peter Cooney and Susan Fenton)