Fears over the financial stability of Bradford & Bingley sent its shares sliding to a new low this morning, despite its firm denial that it is planning a rights issue.

Shares in the bank fell by 7% in early trading to 155.5p, as nervous investors feared it would be the latest victim of the financial turmoil. By 8.30am they were still down by 5.75p at 161.5p - its lowest level in over five years. But the company's shares had climbed back into positive territory by 11am, and were trading up 0.5p at 167.75p.

B&B had attempted to head off the speculation yesterday, telling shareholders that it was "not intending to issue equity capital by way of a rights issue or otherwise".

Along with Alliance & Leicester, B&B is regarded by analysts as heavily reliant on the wholesale debt markets for funding and therefore likely to be looking to raise finance from other sources. Industry observers believe all banks could be looking at ways to use the equity market to raise fresh funds and investors are known to be braced for a round of fundraising by the big banks.

Today's share price fall means that B&B's shares have dropped by around 40% since the start of 2008.

The speculation over a rights issue came just a few weeks after rumours about HBOS, Britain's biggest mortgage lender, wiped more than £3bn off its market value in one day last month.

The Financial Services Authority is now conducting an investigation into dealings in HBOS shares, amid suspicion that speculators had spread false rumours of a Northern Rock-style liquidity crisis.

In yesterday's statement, B&B reported that it had a strong capital basis above its regulatory requirements and as a result of the bank's conservative approach has financed its business activities through 2008 and into 2009.

"In the current market environment the board will naturally continue to monitor closely the balance sheet strength of the business and its funding plans," it added.

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