Shares of South Korean tech heavyweight Naver and crypto giant Dunamu surged on Tuesday, backed by expectations of a potential acquisition deal.

The rally follows reports from last week that Naver is considering acquiring Dunamu, operator of Upbit -- Korea's biggest crypto exchange and the world's fourth-largest by trading volume -- in a comprehensive share swap through its finance affiliate Naver Financial.

Naver shares climbed to as high as 279,500 won ($199) during intraday trading Tuesday, giving the tech giant a market capitalization of about 43 trillion won. After hitting the intraday peak, the stock pared its gains to 271,000 won as of 1:30 p.m.

The stock has risen by around 50,000 won from last Thursday's opening price of 231,000 won, just before reports of the talks first surfaced. On that day alone, Naver shares jumped 11.4 percent.

The rally marks a sharp rebound from a three-month low of 210,500 won on Sept. 1, underscoring investor optimism over the possible transaction.

With the talks underway, Dunamu's over-the-counter price has also soared, climbing to a high of 410,000 won on Monday, according to Stockplus, a platform for trading unlisted stocks.

Though not listed on the Korea Exchange, Dunamu's stock began trading on the Stockplus market in mid-2021. Its share price stood at 389,000 won as of 1:30 p.m. Tuesday, up 2.1 percent from the previous day's close.

While Dunamu Chair Song Chi-hyung, who holds a 25.5 percent stake in the company he leads, is expected to become the largest shareholder of Naver Financial through the share swap deal, his stake could increase further if Dunamu's rising OTC valuation is reflected more favorably in the merger terms. Dunamu's estimated valuation currently stands at 13 trillion won.

Some even see a possibility of the merged entity pursuing a US listing on the Nasdaq. As an unlisted company, Dunamu would face relatively tougher regulatory standards in an initial public offering, but with Naver being a Kospi-listed company, it could face lower barriers to entering global markets.

Dunamu and Naver Financial plan to convene board meetings in late October to finalize the share swap ratio and other details.

Naver, Dunamu rally as acquisition talks gain steam