U.S. coal stocks up on talk of Massey-Patriot bid

NEW YORK (Reuters) - Shares in Patriot Coal Corp (PCX.N) rose 11 percent on Tuesday, and analysts said the rise was driven by a market rumor that the mining company was an acquisition target of Massey Energy Co MEE.N.

There was no immediate comment from Massey. Janine Orf, a spokeswoman for Patriot, said it was company policy not to speak about market rumors.

On the New York Stock Exchange, Patriot stock rose $2.08, or 11.5 percent, at $20.16 in afternoon trading. Massey was $1.87 or 4.2 percent higher at $46.41.

"Shares of Patriot Coal are trading higher and its call option volume is increasing on talk that Massey Energy might bid for Patriot," said WhatsTrading.com options strategist Frederic Ruffy.

He noted the rumor was unsubstantiated, "but it seems to be driving a lot of buying interest in the March call options with strike prices of $19, $20 and $21.

"Some investors are using options as leverage to play the speculation on expectations that a possible takeover announcement might lift the stock price."

In the first 85 minutes of trade, Patriot's overall option volume was double the recent average daily turnover with about 13,000 calls and 2,0638 puts traded, according to option analytics firm Trade Alert.

Analyst Jeremy Sussman, of Brean Murray Carret & Co, declined comment on a rumor, but noted there was bullish sentiment for the industry right now as demand for steelmaking coal is soaring while power-generating thermal coal may be turning upwards again.

"Any rumors investors hear are not going to hurt sentiment for the group," Sussman told Reuters.

Other coal stocks were up too -- Arch Coal Inc (ACI.N) rose 3.6 percent to $23.50, Consol Energy Inc (CNX.N) was up 3.7 percent at $54.21 and Peabody Energy Corp (BTU.N) rose 2.1 percent to $47.98. The Dow Jones coal index .DJUSCL was up 3.5 percent.

(Reporting by Steve James, additional reporting by Doris Frankel in Chicago, editing by Gerald E. McCormick)