Britain's financial watchdog is investigating recent trading in financial shares following a series of market rumours about banks that were alleged to be in trouble.
The Financial Services Authority's brief statement came after HBOS was forced to deny market speculation that the group was facing serious liquidity problems. The group's share price has tumbled in London stock market trading, despite the denial.
'There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling,' said Sally Dewar, FSA managing director of wholesale and institutional markets.
Short-selling refers to trades made in the expectation that a company's share price will fall, thereby netting the seller a profit if it does drop.
Earlier, HBOS rebutted market rumours that the group had requested emergency funding from the Bank of England. A spokesperson for the Bank of England (BoE) also denied the rumours. 'No meetings have taken place, or been scheduled to take place' to discuss any institution in Britain, the spokesperson said.
The Bank of England spokesman said rumours that the central bank's Governor Mervyn King or any other senior executive had cancelled a trip to the Far East due to a possible problem were 'complete fantasy'.
King deferred a trip to England's West Midlands yesterday to monitor general market developments after the weekend bail-out of US investment bank Bear Stearns, he said.
Meanwhile, two of the nine Bank of England policymakers opposed this month's decision to keep interest rates at 5.25%, preferring an immediate quarter-point cut to shore up the economy in the face of a global downturn.
Minutes of the March 5 and 6 meeting published today showed that the bank's deputy governor responsible for financial stability John Gieve joined arch-dove David Blanchflower in calling for a pre-emptive rate reduction.
Markets had predicted an 8-1 vote and Gieve's call for a cut is likely to increase expectations of further reductions, particularly given his remit.
