TRADERS blamed for bringing down HBOS by short selling reacted angrily yesterday to a temporary ban introduced by the industry regulator.

TRADERS blamed for bringing down HBOS by short selling reacted angrily yesterday to a temporary ban introduced by the industry regulator.

Short sellers - who offload shares in the belief that the price will fall allowing them to buy them back more cheaply and pocket the difference - accused the Financial Services Authority (FSA) of "shooting the messenger" and warned of "unintended consequences".

One hedge fund chairman reportedly said yesterday that blaming short sellers for the failure of HBOS was "ridiculous", adding: "You may as well regulate away human nature."

As mixed reactions to the ban swept across the City there were predictions that the "spivs and speculators" accused of bringing HBOS to near disaster would not survive the multimillion-pound losses they were now expected to have to take on.

Tom Hougaard, market strategist at financial spread betting firm City Index, estimated that short sellers would need to buy back tens of millions of bank shares worth hundreds of millions of pounds at a loss.

The sudden ban on short selling in the UK was imposed by the FSA after growing pressure to crack down on the legal but controversial practice.

FSA chairman Sir Callum McCarthy said the ban was justified because short selling, often based on malicious rumours, had triggered huge drops in share prices which destroyed confidence among savers and shareholders, killing off financial giants.

But despite that scathing attack, the FSA also maintained its view that the practice had its place. Analysts explained that in "normal times" short-selling created stability, not chaos.

Simon Maughan, of MF Global Securities, said: "The normal benefit of short selling is that it provides a balance between buying and selling."

The US has also imposed a temporary ban on short selling following the FSA's move in a bid to stabilise financial markets there, too.