The impetus for a deal increased last week, with a unilateral settlement by Liggett, maker of the Chesterfield brand, with 22 states that have filed anti-smoking lawsuits.
Tobacco shares have been under pressure for the past year because of the litigation and were hit by renewed selling again on Friday.
Britain's BAT Industries, which owns Brown & William-son, the third biggest US tobacco company, is already spending $100m (pounds 62m) a year on legal fees - a sum matched by the two other majors, Philip Morris and RJR Nabisco.
Liggett, headed by corporate raider Bennett LeBow, is the weakest player in the market, and the big three are unlikely to match its offer - over a quarter of annual profits - without guarantees over further outstanding class actions.
The industry could afford a multi-billion dollar compensation package, however, in return for immunity against any further legal challenges.
The industry has adopted a policy of not commenting on its own internal discussions or those it is holding with the US government, which would need Congress to pass a new law to deliver any deal.
However, analysts are convinced that talks are underway following the steady stream of acceptance by the main players that they would be prepared to agree a deal that was in the best interests of investors.
"The only way a proper settlement can be reached is at federal level and that means going through Congress," said Nyren Scott-Malden, tobacco analyst at brokers Barclays de Zoete Wedd.
"The federal authorities would also like a settlement. There's some delicate dancing going on," he said.
Speculation that a settlement is on the agenda was fuelled by a Philip Morris filing earlier this month with the US Securities and Exchange Commission in which it said it "may enter into discussions with appropriate parties".
However, the company made clear that any negotiations would remain a secret. "Were that (the discussions) to happen, the company would not contemplate making any further comment as to the existence or progress of any such discussions," the company said.
The tobacco industry's recent hiring of two Washington law firms and a political lobbyist have added to the market's conviction that a deal is on the cards.Reuse content