Takeover target Abbey National has signed a deal with life assurer Prudential which could boost its profits.

Abbey has signed a distribution deal to market Prudential's savings products.

The move by Abbey, which has its regional head quarters in Bradford, will see it distribute

Prudential's with-profits bond product for an initial -year period from 2003.

The two companies have also signed a preliminary agreement where Prudential will distribute Abbey's life protection products.

Both firms said the partnership had the potential to boost income.

The move follows similar 'bancassurance' deals between banks and insurers, such as one recently signed between Barclays and Legal & General.

The mortgage lender also announced that it has rejected the takeover offer from National

Australia Bank - even though it would have valued the high street bank at as much as 750p a share - some 150p above the price at the time.

Details of the massive NAB offer began to leak to City analysts after the Melborne-based operation, which already owns Clydesdale and Yorkshire banks, admitted that talks had taken place but had "now ceased".

The Bank of Ireland is still looking at a possible merger with Abbey, which issued a series of profits warnings this year.

The Dublin-based bank is said to be working frantically to convince investors that it is able to offer "tangible and immediate financial benefits".

Industry insiders say BoI is trying to sweeten the deal to Abbey shareholders by offering a two-thirds stake in the combined entity and a small cash payout.

Abbey's share prices have lifted among speculation that it may be set to combine with another firm, but they have failed to lift anywhere near the £12 reached when Lloyds TSB made an ill-fated offer two years ago.