"This is complete and utter nonsense," Shane O'Riodain, HBOS general manager of group communications, told Thomson Financial News. A spokesperson for the Bank of England also denied the rumours.

HBOS, Britain's biggest mortgage lender and the holding company for the Halifax bank and Bank of Scotland, saw its share price slide 7.08 per cent to 446.25 pence in London.

Britain's stock-market regulator announced an investigation into rumour-mongering that has beset some financial stocks.

US investment bank Bear Stearns and British retail bank Northern Rock have both already been sunk by global financial problems this year.

Wall Street had staged a powerful rebound after the interest rate announcement on Tuesday, soaring 3.51 per cent or 420.41 points, its biggest one-day point gain since July 2002.

Wall Street falters

But, after opening up on Wednesday, US stocks faltered with analysts suggesting that profit-taking was to blame.

"What you're probably seeing right now is simply profit-taking,"  Peter Jankovskis, director of research at OakBrook Investments LLC, said.

"People have decided that they got what they can out of the Fed meeting and they are now taking some money off the table."

Robert Heller, trader at Chapdelaine Brokerage on the AmEx floor, said: "We are up 600 points in two days so to have the market slip 50 points or so is nothing. It's just noise.

"People are taking a breather, looking to figure out what's next."

However, some analysts warned that there were still fears of a US recession were still foremost in investors' minds after the emergency sale of Bear Stearns and the collapse in the high-risk home loans market.

"Considerable market concerns remain about a deeper and longer recession or a systemic crisis," Gavin Friend of Commerzbank said.
  
"After all, it will take months before light is expected at the end of the write-downs and revaluations tunnel."