BlackRock shares rose almost 14 percent to $149.80 on the Inet electronic brokerage.
Both The New York Times and The Wall Street Journal, citing people familiar with the discussions, reported in Monday editions that Merrill Lynch would acquire a large stake in BlackRock, known for managing fixed income. The Journal valued the transaction at about $8 billion.
Megan Frank, a spokeswoman for Merrill Lynch, said the company can't confirm or deny market rumors. A call to BlackRock seeking comment was not immediately returned.
A deal would create a company with $1 trillion in assets under management, the most of any publicly traded company.
A BlackRock deal would be more strategically compelling than the alleged Merrill deal with Morgan Stanley, Buckingham Research said in a note to investors.
The transaction would be highly accretive to BlackRock's earnings, with about 9 percent to 14 percent addition to earnings per share this year, and increasing to 13 percent to 22 percent in 2007, Buckingham said. It has a "strong buy" on the stock.
Final terms were being worked out over the weekend, and both newspapers said it was possible the deal could fall apart at the final hour.
The Journal report said Merrill may take less than a 50 percent stake in BlackRock, and the Times said the stake would be between 48 percent and 50 percent.
Merrill would be stepping into a void created by the recent failure of talks between rival Morgan Stanley (MS) and BlackRock, the Journal said.
Merrill Lynch has been the subject of market speculation. Its asset management arm was involved in a transaction, with a possible deal with Legg Mason Inc. (LM) reported by the Times in June 2004.
Legg Mason struck a deal with Citigroup last year, with Legg Mason acquiring most of the asset management arm of Citigroup, which gained cash and a stake in the $3.7 billion swap.
Citigroup picked up Legg Mason's brokerage in the deal, which was spurred in part because of regulatory concerns about brokers selling their own in-house mutual funds.