Shares in oil major BP hit a six-month high on Tuesday after reports rival Royal Dutch Shell considered a takeover bid, and that economic damages from its oil spill will be lower than forecast.

BP shares were up 5.6 percent to 491.7 pence by 1351 GMT.

The Daily Mail newspaper, citing sources close to the Anglo-Dutch group, reported Shell weighed an opportunistic bid for BP as crude gushed into the Gulf last summer, but was discouraged by the potentially uncapped legal liabilities.

The newspaper said Shell could yet bid for BP if another suitor emerged but Europe's largest oil company by market value was unlikely to be the first mover for number two, BP.

Dealers and analysts including Mic Mills, head of electronic trading at ETX Capital, said BP was also being boosted by comments late on December 31 from the lawyer running BP's gulf oil spill compensation fund that suggested damages payments could be half the expected level.

Ken Feinberg, the independent administrator of the $20 billion fund set up by BP told Bloomberg Television about half the fund's assets should be adequate to cover claims for economic losses.

One dealer said the news reports focused minds on the fact BP shares were cheap compared to rivals. BP remains cheap and vulnerable at these levels but I do not think a bid is likely.

BP shares trade on a price-earnings ratio of 6.5 times, consensus 2011 earnings, while Shell trades at 8.9 times, partly reflecting the fact BP's actual earnings could be far lower if it was found to have been grossly negligent in causing the oil spill which would boost legal costs and fines.

However, Feinberg's comment highlighted how the picture could also be brighter than the company has predicted.

The reports come ahead of a final report, to be released January 11, by the National Commission on the BP Deepwater Horizon Oil Spill, which was convened by President Barack Obama to uncover what led to the U.S.'s worst ever oil spill.

Comments by Commission members and documents previously released by the Commission suggest the report will be highly critical of BP, and could lead the way to multi-billion dollar federal fines.

Analysts and industry sources said during the crisis last summer it was likely that both U.S. oil giant Exxon Mobil and Shell -- the only companies considered large enough to mount a bid -- would run some calculations on a possible bid for BP.

However, the two notoriously conservative companies were seen as likely to be discouraged by the open-ended nature of BP's liabilities.

Now BP's shares have rebounded 65 percent from their June low at 296 pence, to give BP a market value of around $140 billion, a bid would be much harder to mount, especially for Shell which is worth over $210 billion.

Exxon has a market value of almost $370 billion.

It is uncertain whether regulators on either side of the Atlantic would support a tie-up in the top tier of the industry.

Shell stock traded up 1.4 percent, against a 2.7 percent rise in the STOXX Europe 600 Oil and Gas index, which was lifted by crude prices which hovered near a 27-month high.

BP and Shell declined comment.

(Additional reporting by Jon Hopkins, Simon Falush and Sarah Young in London and Blaise Robinson in Paris; Editing by Sharon Lindores)