NEW YORK - Harley-Davidson Inc shares jumped 5.7 percent on Tuesday amid speculation the motorcycle maker could be the target of a leveraged buyout.

Harley refused to comment on the market talk.

The shares rose $1.51, or 5.7 percent, to $28.01 in early-afternoon trading on the New York Stock Exchange, where they were among the most actively traded issues, reaching their best level since Dec. 8.

The shares were up and calls are very active on unconfirmed talk that Harley-Davidson might be the subject of a leveraged buyout, said WhatsTrading.com options strategist Frederic Ruffy.

Traders are focused on short-term March call options with strikes between $25 and $28 and the April $28 and $30 calls, he said.

March options expire on Friday after the close.

Volatility in the options was hot ... and indicates fear as well as short-covering, said Jon Najarian, co-founder of optionMonster.com.

Short interest in Harley shares is 15 percent, according to Najarian.

Traders in Frankfurt cited market talk that private equity firm Kohlberg Kravis Roberts was a potential bidder for the company.

We don't comment on deal speculation, a KKR [KKR.UL] spokesman said.

PRIVATE EQUITY BUYER?

Peter Zuger, manager of the Touchstone Mid Cap Value Fund, which owns Harley shares but pared its position on Tuesday, said he was not sure what to make of the speculation.

There's been a rumor a day among a lot of value names for the last week, he said. I don't know which ones are real and which ones aren't.

It would make sense (for a private equity buyer) at this point in the cycle because the business is depressed. If the private equity buyer believes we're going to have a recovery and if the cost-cutting they've implemented comes to fruition, you might have a pretty good combination.

The March calls, allowing investors to buy Harley shares at $27 by this Friday, and the April $30 calls are trading briskly, said Jud Pyle, chief investment strategist at Options News Network, a division of option market making firm PEAK6 Investments.

Just like many other stocks in the last few weeks, Harley-Davidson is popping on LBO rumors. On Friday it was Supervalu, today it is Harley, Pyle said. (Reporting by Nick Zieminski, Angela Moon, Chris Steitz, Megan Davies and Doris Frankel; Editing by Maureen Bavdek and John Wallace)

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