The Santa Clara, California-based company's shares jumped 3.94, to 27.94, up more than 16 percent from yesterday's close of 23.94. Volume was heavy, with 18.6 million shares trading hands, four-and-a-half times the average daily volume.
If today's spike in the stock price holds, it will pull Bay off its recent sluggishness, but it is still about 30 percent below its 52-week high. Bay shares traded as high as 41.88 last October.
Erin Curtis, a Bay spokeswoman, said that she could not comment on rumors or speculation. A spokesman for Northern Telecom declined to comment on the report, and the company's shares were not active.
According to Bloomberg, Bay Networks told some analysts that it had rejected an offer from NorTel because it was too low but that it would consider higher bids from NorTel or other suitors.
While Curtis said that Bay has not held any official analyst meetings of late, the company did host an analyst breakfast at Interop last week.
Merrill Lynch analyst Joseph Bellace said Bay Networks has been informally up for sale for some time.
"Bay Networks has always been a [takeover] candidate; it's just a matter of price." As far as any recent formal takeover overtures, Bellace added he was not aware of any, adding, "It's all unconfirmed speculation."
Among other shares that were active today, Microsoft gained 1.25, to 86.94, from a close of 85.69, after a federal appeals court sided with the software giant by barring a lower court decision from interfering with the release of Windows 98. More than 20 million shares traded hands.
Dell Computer closed at 98.25--a new high--up 3.88 from yesterday's close of 94.38.
Reuters contributed to this report.