STOCKS NEWS EUROPE-Pirelli pact talk kindles takeover interest

ROME, Oct (KOSDAQ: 039200.KQ - news) 22 (Reuters) - Shares in Italy's Pirelli (Milan: PC.MI - news) hit 11 year highs as news the tire maker could wind up its controlling shareholder pact prompts takeover speculation.

"Dissolving the pact might create an overhang risk on the shares but the market is looking squarely at the speculative side of things," a trader says.

On Monday, Pirelli said its core shareholders would discuss the possibility of dissolving their pact before its expiry in April 2015.

In a note on Tuesday Italian broker Intermonte says winding up the pact is good news for the shares, signaling rumours about an interest from Germany's Continental (LSE: 0LQ1.L - news) .

"... we believe that Continental, whose interest for Pirelli is historical, could be the natural partner in the future even if we feel at the moment it's too early to talk of tie-ups," the broker says.

A spokeswoman for Continental says the group never comments on rumours.

At 1156 GMT Pirelli shares are up 4.8 percent at 10.68 euros.

Reuters messaging rm://stephen.jewkes.thomsonreuters.com@reuters.net

Reuters messaging rm://ilona.wissenbach.thomsonreuters.com@reuters.net (Reporting By Stephen Jewkes and Ilona Wissenbach)