Circuit City up after it says Blockbuster can see books

Also, the Blockbuster's largest shareholder, Carl Icahn, said he would buy the company on its own if Blockbuster doesn't find financing.

Shares rose 40 cents, or 8.3 percent, to $5.19 during midday trading. The stock has traded between $3.44 and $17.97 during the past 52 weeks.

Lehman Brothers analyst Michael Lasser remained cautious, however.

"While these events are a positive, we think there is a long way to go before any deal is consummated," he wrote. "We are still skeptical that Circuit City will be sold since we view the company's challenges to be structural in nature and will be difficult to surmount."

Circuit City's problems would likely be worsened with a deal with Blockbuster Inc., which is facing its own turnaround issues, Lasser said. He reiterated his "Underweight" rating on the stock.

Deutsche Bank North analyst Mike Baker said if Circuit City goes private, rival Best Buy Inc. would likely benefit.

"Already a share gainer in the space, we believe store closures could positively impact same-store sales and overall profitability as we do not see the Circuit City-Blockbuster partnership stemming the tide of share loss," he wrote.