Traders drove Honda up 11 percent at one point to a high of 4,600 yen ($44.10) on speculation of a tie-up after a recent German magazine reported that DaimlerChrysler would like to acquire a stake.

Weekly business magazine Wirtschaftswoche reported that DaimlerChrysler Chief Executive Juergen Schrempp coveted Honda and would prefer to take a stake in it to a holding in Italy's Fiat or France's PSA Peugeot Citroen.

Honda played down the chance of such an alliance, knocking the stock back down from its highs. By the end of the morning session, it stood at 4,380, up 5.8 percent or 240 yen on the day.

HONDA REITERIATES 'GO-IT-ALONE' POLICY

DaimlerChrysler, currently in talks with rival car makers Fiat and Peugeot Citroen as it aims to grow its compact car business, on Wednesday declined to comment on the report.

Honda, the maker of the popular "Accord" model, on Thursday reiterated its go-it-alone policy.

"We are not considering an equity tie-up with DaimlerChrysler or any other automaker," a Honda spokesman said, adding it had not received any proposal from DaimlerChrysler for taking a stake in it.

Honda has vowed to maintain its independence amid a wave of mergers and acquisitions in an industry facing environmental challenges, chronic overcapacity and an urgent need to cut costs through parts and platform sharing.

Following the merger that created DaimlerChrysler late last year, Japan's debt-laden Nissan Motor Co Ltd in March joined hands with Renault SA of France, forming the world's fourth-biggest automaking group.

ANALYSTS CAST DOUBTS OVER TIE-UP

Analysts cast doubt over whether Honda would entertain a merger and embrace the industry-wise consolidation.

"It would be irresponsible to rule out anything in the global auto industry with all the mergers and alliances we are seeing, but having said that, the corporate cultures between the two would make it difficult to envision a tie-up," said Stephen Usher, auto analyst at Jardine Fleming.

He added that DaimlerChrysler, which is much larger and considered more bureaucratic, would want a significant share in management control. But Honda is much more entrepreneurial and would likely resist giving up much management control, he said.

Chikao Masuzawa, an ING Barings analyst, said taking a stake in Honda would be costly. "It's of course up to how much stake DaimlerChrysler wants to take, but I think it may need at least (a minority controlling stake of) one-third of Honda," she said.

She added that Honda can generate sufficient cash flow so it does not need any quick fund infusion through a capital tie-up.

"I cannot see any benefits from such an alliance," Masuzawa said, adding it remained unclear whether taking a stake in Honda would bring many synergies at a time when DaimlerChrysler is still struggling to overcome cultural differences and has yet to draw up a clear strategy one year after the mega merger.

HONDA VALUATION REMAINS CHEAP

Analysts said of Honda's valuation remains cheap, with its shares underperforming the benchmark bluechip Nikkei 225 average.

Honda was up 19 percent this year against a 36 percent rally in the Nikkei amid feverish buying in the information technology sector.

Hit by a high yen, Honda reported a 13.8 percent fall in its consolidated net profit in the six months through September, but its underlying business strengths on the back of a strong brand image remained intact especially in the key North American market.

Honda became the nation's second-biggest automaker next only to Toyota Motor Corp in terms of both monthly domestic sales and output volume in October, beating rival Nissan.

($1-104 yen)

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