Updated from 11:56 a.m. EDT

Shares of troubled

Corel

(CORL)

leapt on speculation that an agreement with

Hewlett-Packard

(HWP)

announced Tuesday may be a precursor to a purchase of the Canadian software developer or one of its divisions by the world's third-largest computer company.

Corel shares traded up 25/32, or 22%, to 4 13/32 Tuesday, after trading as high as 5 5/8.

Corel announced a worldwide OEM -- or original equipment manufacturer -- agreement with Hewlett-Packard, under which Corel's Print House 2000 graphics product will be bundled with Hewlett-Packard's ScanJet 4300C scanner. The agreement includes localized versions in 11 different languages. Corel makes agreements with different OEMs, such as Hewlett-Packard, in which Corel will allow one of its products to be featured as part of an OEM product.

David Wright, an analyst with

BMO Nesbitt Burns

, said that Corel already has a number of OEM agreements in place, some of them with Hewlett-Packard. "On its own, this announcement doesn't indicate why the stock is running," he said. "The market is speculating that something more is going on than a simple OEM agreement." He rates Corel an underperform and his firm has done no underwriting for the company.

That "something more," Wright said, could be either a purchase of the CorelDraw illustration software product line or indeed a purchase of the entire company by Palo Alto, Calif.-based Hewlett-Packard, a move which could solve Ottawa-based Corel's cash flow and management issues.

Melanie Rushworth, a spokeswoman for Corel, said it is the company's policy not to comment on speculation. Hewlett-Packard could not immediately be reached for comment.

Corel has posted disappointing financial results for the last three quarters and analysts are no more hopeful for third-quarter numbers, which are due out the week of Sept. 18. Corel's troubles are myriad, dating from its 1996 purchase of the WordPerfect word processing software, which meant it was effectively "taking on

Microsoft

(MSFT) - Get Report

," Wright explained.

Its CorelDraw product is also facing a maturing of the graphics industry, while the company's recent entry into the Linux operating system space "generates a lot of excitement but very little revenue and a lot of costs," Wright added.

Shares of Hewlett-Packard were trading down only 9/16 to 119 7/16 around midday Tuesday.