Construction and engineering group Balfour Beatty is in advanced talks regarding a significant acquisition and is mulling a rights issue to fund a deal analysts expect will involve a U.S. or British firm.

Balfour Beatty confirms that it is in advanced discussions regarding a significant and complementary acquisition, the company said in a statement on Thursday.

Britain's biggest infrastructure contractor, whose activities span roads, rail and schools, said the planned acquisition would materially accelerate the fulfilment of its existing strategy.

Responding to media reports it was preparing a rights issue of up to 350 million pounds ($576 million), the company said it expected to substantially fund any deal by issuing new shares.

It did not say how big any rights issue would be and cautioned there was no guarantee it or the acquisition would proceed. A spokesman for the company declined to comment further.

Andy Brown, analyst at Panmure Gordon & Co, said following a string of acquisitions in the UK it was unlikely Balfour would do another big deal in its home market.

Buying Centex, Barnhart, and RT Dooley has significantly enhanced its North American presence, Brown wrote in a research note. This is an area which could see further expansion.

Another likely growth area was in the public-private partnership and the private finance initiative arena, he said, adding that growing its professional services unit would likely be achieved organically given its dependence on people.

One trader pointed to British infrastructure services company Mouchel Group as a possible target, noting that its shares had risen sharply in recent days.

The stock was up 2.8 percent at 218.1 pence by 0905 GMT, taking Mouchel's gains over the last three days to 19 percent.

Balfour last month posted a robust first-half profit and said it was seeing a rebound in the infrastructure market.

Separately, smaller rival Kier Group reported on Thursday a 41 percent fall in pretax profit but said the current year had started well.

Shares in Balfour Beatty were up 1.2 percent at 348 pence by 0905 GMT, outperforming a 0.7 percent rise for the FTSE 100 index of leading British blue chips .FTSE. ($1=.6079 pounds) (Editing by Mike Nesbit)

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