Danone shares fell 7.5 per cent yesterday after the AMF, France's stock market regulator, said it had been told by PepsiCo that it was not preparing a bid for the food multinational.

The disclosure came after French politicians denounced the possibility of a foreign purchase of Danone, echoing the interventionist stance that dissuaded Novartis, the Swiss pharmaceuticals group, from bidding for Aventis, its French rival, last year.

Danone, the world's leading producer of fresh dairy products, has a very strong position in the biscuit and bottled water markets, owning the Lu, Evian and Volvic brands.

Its shares rose 16.5 per cent last Tuesday and Wednesday amid a hardening of speculation that PepsiCo might bid. However, political opposition was building. Dominique de Villepin, prime minister, declared last week that Danone was a national "jewel" and that his government would "defend the interests of France".

Nicolas Sarkozy, interior minister, said ministers could not stay inactive in the face of a hostile bid, saying it would mobilise key shareholders to block any such offer.

Jacques Chirac, the president, declared that he was remaining "particularly vigilant" over Danone's future.

A person familiar with the situation said PepsiCo chose not to pursue its interest in Danone after seeing the negative reaction from the French state.

Danone shares fell €6.65 to €81.80 yesterday.

They had already dipped 5.2 per cent on Thursday after Franck Riboud, Danone chairman and chief executive, said there had been no recent contact with PepsiCo or any other foreign suitor, either officially or unofficially.

One fund manager said that if PepsiCo was ever to attempt a bid, it would have to mount a skilled lobbying and public relations operation in France. "If they were serious about a bid this summer it appears they did not lay adequate foundations beforehand," he said.

Danone said the statement made to the AMF by PepsiCo saying that it was not preparing a bid had been necessary to end speculation that had been "fed by the absence of a denial".

PepsiCo has declined to comment throughout the period of speculation.