Alliance & Leicester CDS tighten sharply -traders

LONDON (Reuters) - The cost of insuring Alliance & Leicester's debt against default fell sharply on Monday after it said discussions over a possible takeover were at an advanced stage, traders in London said.

Five-year credit default swaps on Alliance & Leicester were quoted 100 basis points tighter at around 117 basis points, the traders said. This means it costs 117,000 euros (93,650 pounds) a year to insure 10 million euros of the bank's debt against default.

Spanish bank giant Santander, which owns Abbey, is the potential bidder, BBC Radio 4 reported. Santander declined to comment.

"It's not just somebody, it's one of the biggest banks in the world, with very strong liquidity. So it's gone from a situation where everyone was staying away ... (to) if this goes through, it would be part of one of the top five banking groups," one trader said.

"Instead of trading at 250 (basis points) over with no one trading wanting to buy any bonds, it'll be trading at a ballpark of about 70 (basis points) over," he said.

(Reporting by Maya Thatcher and Natalie Harrison)