According to a report in Swedish business title Affärs Välden (Business World) the two companies would combine the majority of their European papermaking operations, with UPM becoming the majority shareholder in the new venture with a 65% stake.

The mooted move would create the world’s biggest paper company. It has been speculated about for some time.

A Reuters report last year stated: "A merger would improve profitability by combining production facilities while at the same time allowing them to take advantage of growth areas and businesses that are not overlapping, such as in packaging and label products."

A merged business would control around 40% of European paper capacity, said Handelsbanken. Any deal would be subject to approval by the European competition authorities.

A paper industry expert told PrintWeek: "I think it would make complete sense culturally. If UPM is going to take over anyone then Stora Enso is the most compatible. And Stora Enso have made it clear they don’t want to remain in paper making."

Both companies have headquarters in Helsinki, although there has also been speculation that UPM plans to relocate its HQ to Augsburg in Germany, where it has a substantial facility.

UPM had global sales of €10.4bn (£8.8bn) in 2012, 67% of which was papermaking. Stora Enso posted worldwide sales of €10.8bn last year, with 43% of that made up of printing and reading paper.

UPM’s share price has been rising over the past month and is currently at €10.85. Stora Enso shares are at €6.85, up almost 30% this year.

UPM and Stora Enso declined to comment on market rumours.