Shares in Halifax Bank of Scotland slumped by a third on Tuesday [AFP]

The news on Wednesday sent Halifax Bank of Scotland (HBOS) shares surging higher, after heavy losses in earlier trade that prompted Britain's Financial Services Authority (FSA) to issue a statement saying that the group was well funded.

Spokesmen for both HBOS and Lloyds TSB declined to comment.

HBOS shares have fallen from 52 per cent to a low of 88 pence, as investors worried over the state of the global banking sector despite news of a financial rescue for US insurer AIG.

However, the Lloyds TSB takeover report reversed earlier HBOS and Lloyds shares losses.

At one point, HBOS shares were down as much as 47 per cent from Tuesday's close of $3.26, but then rose to more than 10 per cent higher.

Europe markets

Meanwhile, volatile trading sent European stock markets on a roller coaster early on Wednesday, after the US Federal Reserve announced its rescue for bankuptcy-threatened insurance company AIG.

London's FTSE 100 index of leading shares was up 1.26 per cent to 5,089.10 points at mid-morning, swinging up again after reversing its initial gains, in a trend mirrored on other European markets.

In Paris, the CAC 40 was up 0.29 per cent to 4,099.36 points and Frankfurt's DAX 30 rose 0.25 per cent to 5,980.17, having both switched into losses earlier in the morning.

Russia's leading RTS stock market suspended trading following a plunge of six per cent, a spokeswoman for the dollar-denominated stock market said.

'Better co-operation'

Central banks in Switzerland, Russia and Japan also poured more short-term cash into the markets on Wednesday, hoping to restore confidence between banks and encourage lending between them.

Credit markets tightened on Monday, following the collapse of the investment house Lehman Brothers and central banks injected billions on Monday and Tuesday in an attempt to turn the tide.

By Wednesday, some appeared satisfied at the level of lending, while others continued to make more cash available.

At the Swiss National Bank in Zurich, a spokesman said it was providing weekly money to bidders at 1.9 per cent but refused to give further details.

"As in days past, the bank continues to provide generous and flexible liquidity to the markets,'' he said.

The Bank of Japan in Tokyo injected an extra $28.4bn into money markets to ensure liquidity, following on the heels $24bn it pumped in the previous day.

Russia also moved to support the country's increasingly stressed banking sector, with the finance ministry in Moscow raising lending for the country's top banks,  Sberbank, VTB, and Gazprombank, to $44.9bn.

The banks will be loaned federal funds for a minimum of three months, the ministry said.

Reflecting the depth to which the financial crisis has been felt, Angela Merkel, the German chancellor, told parliament she expects the crisis to effect Europe's biggest economy and called for politicians to construct "a smart frame of order'' for financial markets.

That, she said, should include better co-operation with regulatory agencies, more overall transparency, and for rating agencies and hedge funds to act more responsibly.

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