Barratt Developments saw its share price surge by as much as 34.6% yesterday after Polaris Capital Management raised its stake in the ailing housebuilder.

Barratt Developments saw its share price surge by as much as 34.6% yesterday after Polaris Capital Management raised its stake in the ailing housebuilder.

Barratt said Polaris had reached a threshold of a 6% stake but did not offer any further comment.

Shares in UK housebuilders have been battered recently on falling property prices and weak economic outlook.

Barratt shares later closed 30.25p stronger at 158.25p - a gain on the day of 23.75% in London dealing.

City housing industry analysts said they did not believe Polaris's share buying signals a potential bid for Barratt, but the move helped rekindle interest in the sector.

Polaris claims to seek "the most undervalued companies worldwide" for its investment opportunities. Its decision to buy into Barratt comes after the group saw its shares dive as house prices fall and the market grinds to a near halt.

The stock sank to below 42p each last month, down from highs of nearly 1290p early last year.

Barratt also last week completed its refinancing agreement with banks under plans to bolster the group in the face of troubles, which will also see it shed 1200 staff and close offices in Scotland and England.

But a report at the weekend suggesting that fellow builder Crest Nicholson may need £100m in fresh capital from 50% shareholder HBOS indicates that the sector's woes are far from over.

If HBOS, which bought its stake in 2007 at the height of the housing boom, decides not to support the builder, it could see the lending banks step in and take control of Crest.

Housebuilder Redrow is also said to be negotiating a new bank facility with its bankers.

The sector has been hit hard by the downturn in the house market, with the credit crunch leaving buyers struggling to raise finance, sending prices falling.

Halifax said last week that house prices have lost 8.8% of their value during the past year, after a 1.7% fall in July.

Bellway, a major housebuilder, will provide the latest snapshot of the industry woes when it makes a trading update on Thursday.