The Investment Corporation of Dubai (ICD) has approached Colonial about buying major stakes in the Spanish property firm, which could lead to the state-owned fund making a full takeover bid, Colonial said on Thursday.

In a statement, Colonial said ICD was looking at buying stakes held by the Nozaleda family and former chairman Luis Portillo, who together own more than 52 per cent of Colonial, according to stock exchange records.

ICD has asked for access to Colonial's books. Colonial said its board would discuss the approach at a board meeting later.

Colonial shares were up 1.9 per cent at 1.64 euros, having touched 1.73 euros. The stock has tumbled 65 per cent since the start of last year on fears about a sharp slowdown in the Spanish property sector and as derivative positions unwound.

Colonial has a market capitalisation of about 2.8 billion euro ($4.16 billion) and debt of almost 9 billion euros. Its net asset value is about 12 billion euros.

Last week, Colonial said it had opened its books to GE Real Estate Iberia, which has also approached the firm about making a possible a takeover bid.

If ICD bought Colonial, it would be the first foreign state holding company to invest in Spain since the slowdown hit the property sector last year after nine years of rocketing growth.

Sovereign wealth funds from the Middle East to China have played a fundamental part of propping up global banks which have been hit by the fall-out of the US subprime crisis.

Spain's housing situation is different from the United States, in that home owners are not defaulting on mortgages en masse. Bankers regularly say there is no subprime market here.

But the country is plagued by overcapacity, prices are falling in some areas and with higher interest rates and tighter financing conditions, there are worries that it is only a matter of time before mortgage defaults start to rise.

In the meantime, property developers like Colonial are saddled with huge debts and are being squeezed by banks, which are unwilling to refinance loans while the credit market is still so tight.-Reuters