ROYAL Bank of Scotland's plunging share price has prompted long-sceptical analysts at Investec to upgrade the stock from "sell" to "hold".

But in a falling market, shares in the part-nationalised lender still closed down on the day, shedding 0.8p or 0.3% to finish at 280.9p.

Edinburgh-based RBS has come under pressure after announcing the departure of chief executive Stephen Hester earlier this month. Its share collapse was accelerated by Chancellor of the Exchequer George Osborne's announcement he is considering dividing the bank into an unsullied "good" bank that can be privatised and a "bad" one containing its toxic debt. This created uncertainty about the timing of any sell-off in shares of the 81% state-owned lender.

Ian Gordon, analyst at Investec, wrote in a note for clients: "Enough! The RBS share price has collapsed by 12% in two days, and by 20% in a month, reclaiming its position as the worst performing UK bank year-to-date.

"Given increased political disarray, despite deep 'valuation support', we do acknowledge the potential for further near-term weakness."

Mr Gordon added: "More fundamental investors should place reliance on the fact the Chancellor must surely see the folly (and cost) of a good bank/bad bank split. As such, based on a broadly unchanged outlook, we now see modest value."

Investec is more pessimistic than many brokers on RBS's prospects although Mr Gordon highlighted the potential benefits for RBS from rising mortgage lending and improvements in loan default rates in Ireland.

Investec raised its target price on the stock to 305p from 300p.

The broker's preferences remain Barclays and Asia-focused Standard Chartered.

The taxpayer bought into RBS at the equivalent of 502p a share. However, the holding is valued on the Government's books at 407p.