"Etisalat has submitted a preliminary conditional offer to buy a stake in Zain," Etisalat spokesman Ahmed bin Ali told Reuters. He gave no further details.

Earlier on Wednesday, CNBC Arabiya reported that Etisalat had offered 1.7 dinars per share for a 46-percent stake in Zain, which would come to just under $12 billion.

Zain, the Gulf Arab region's third-biggest telecoms firm, said its management had not received an official offer.

Another news channel, Al Arabiya, said National Bank of Kuwait was an advisor to Etisalat, and BNP Paribas was advising Kharafi Group, a large Zain shareholder.

Zain shares closed up 7.9 percent at a four-month high of 1.36 dinars.

"The initial reaction of some investors is that 1.7 is a bit on the expensive side, but I am sure Etisalat have made their calculations and realized they will be gaining some," said Mohammed Ali Yasin, chief investment officer at CAPM Investments in Abu Dhabi.

Etisalat, which operates in 18 countries including Egypt and India, but derives 85 percent of its income from domestic operations in the United Arab Emirates, is among Gulf telcos looking to expand overseas after losing their monopoly at home.

Its chairman expressed an interest in a 26-percent stake in India's Reliance Communications earlier this year.

The company has made acquisitions from Nigeria to Indonesia, but its only Gulf operation outside its home country is the mature Saudi Arabian market.

"If the deal goes through, Etisalat will have exposure to high-growth markets such as Iraq and Lebanon, which has in the past been of strong interest," said Shardul Shrimani, telecoms analyst at IHS Global Insight, adding it would also gain access to more stable markets in Bahrain, Kuwait and Jordan.

Zain offloaded its African assets earlier this year in a $9 billion deal with India's Bharti Airtel, with most of the proceeds distributed to shareholders.

"If these reports are true, then the question is why would Etisalat buy only 46 percent? We would expect Etisalat to want management control of the operations," said Irfan Ellam, Al-Mal Capital telecoms analyst.

Some Kuwait investment houses and merchant families, including Zain shareholder Kharafi, have been badly hit by the financial crisis and keen to offload assets.

Etisalat's shares were up 0.9 percent, slightly outperforming Abu Dhabi's bourse.