Frankfurt  - Germany's Commerzbank AG and insurer Allianz SE said Thursday their boards are to meet Sunday amid mounting speculation of a merger between two of the nation's leading banks.

While an Allianz spokesman declined to comment on what the insurer's board members will discuss, the meeting in Munich is widely expected to agree to selling off its troubled banking offshoot Dresdner to Commerzbank for up to 9 billion euros (13.3 billion dollars).

At the same time, Commerzbank board is to hold an extraordinary meeting in Frankfurt raising the prospects that Germany could be on the brink of a major shakeout in its fragmented banking industry.

The possibility that Allianz could announce on Sunday a deal to merge its Frankfurt-based Dresdner with cross-town rival Commerzbank follows months of speculation about a tie up between the two banks which would clear the way for the biggest restructuring of the German banking system in more than 7 years.

Munich-based Allianz, which is Europe's biggest insurer, is also understood to have been holding talks with the China Development Bank, which it is believed was prepared to offer more for Dresdner than Commerzbank.

But with the talks between Commerzbank and Dresdner having entered a critical stage in recent days, German media reports have set down the outlines of a deal.

This includes the two banks agreeing to a structure for the transaction with Allianz having announced in March plans to sell off its banking operation.

The news of the board meetings triggered a new rally in German finance sector shares with Commerzbank, Germany's second biggest listed bank, jumping by 1.8 per cent to 20.44 euros.

Allianz's shares raced ahead by 3.0 per cent to 112.54 euros on hopes that it may have found a solution for Dresdner, which has been badly hit by the global credit crunch and which in turn has taken its toll on Allianz's bottom line.

Earlier this month Allianz announced the company had been forced to abandon its earnings forecast in the face of tough financial markets.

The negotiations over the possible sale of Dresdner to Commerzbank have also been held against the backdrop of worries about the impact on both banks of the fallout from the US subprime mortgage market crisis.

Allianz, however, is reported to be planning to hold a 30-per-cent stake in the new merged Dresdner-Commerzbank group with analysts estimating that a Dresdner sale could generate about 9 billion euros for the Munich-based insurer.

Under the merger deal, Dresdner's investment house Dresdner Kleinwort is also expected to face a major restructuring.

While Dresdner this month posted its fourth consecutive quarterly loss in the three months to the end of June, Commerzbank's mortgage group Eurohypo has been forced to beef up its loss provisions.

Allianz paid 21 billion dollars for Dresdner in 2001 as part of an ambitious plan to sell its pension and insurance schemes through Dresdner's network of more than 800 branches.

This is the second time that two of Germany's big banks have attempted to merge with plans for corporate marriage between Dresdner and Deutsche Bank AG, the nation's largest bank, dramatically falling apart in 2000.

The failure of Deutsche and Dresdner to create a new financial powerhouse was seen as a major setback to German bank consolidation.

Moves by Dresdner and Commerzbank to forge a merger could be part of a prelude to the two banks launching what would be a three-way merger with Deutsche Post AG to form a new banking powerhouse in Europe's biggest economy with a total of 26.5 million customers.

Deutsche Postbank's parent, the postal and logistics group Deutsche Post AG, has indicated it will decide in the coming months whether to sell off a big stake in its banking arm.

Shares in Postbank also climbed following the announcement of the Dresdner and Commerzbank board meeting, gaining 2.7 per cent.

An announcement on a merger between Dresdner and Commerzbank would be the second time in about a week that a so-called German solution has been found to an industry problem in the country.

Last week, German auto supplier Continental AG approved a takeover offer by smaller German rival Schaeffler Group after weeks of talks and a hike in Schaeffler's bid. (dpa)