NEW YORK (Reuters) - Palm Inc (PALM.O) shares jumped to their highest level in nearly two years on Tuesday, fueled by short covering and renewed speculation that the smartphone maker may be a takeover target.

Shares of Palm jumped to a session high of $17.50 on the Nasdaq, a gain of nearly 10 percent, helped by market talk that bigger rival Nokia (NOK1V.HE) was interested in Palm.

Representatives for both Nokia and Palm declined to comment on the rumors.

The merger chatter, along with anticipation of a successful secondary stock offering, may have sparked short sellers to cover positions, driving the stock higher, analysts said.

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