Shares in HBOS soared 16.9% yesterday, driven in part by rumours that Spanish bank BBVA is considering bidding for the Edinburgh-based mortgage lender.

Shares in HBOS soared 16.9% yesterday, driven in part by rumours that Spanish bank BBVA is considering bidding for the Edinburgh-based mortgage lender.

The speculation came after shareholders largely snubbed the bank's £4bn rights issue last week, with just 8% purchasing shares, leaving underwriters Morgan Stanley and Dresdner Kleinwort to seek buyers for the rest.

Yesterday's rise, which also came after relatively good news from US lenders, saw HBOS shares break through the 275p price at which the new shares were being offered to shareholders to close at 305p, a 44p gain on the day. The closing of short positions by hedge funds who had bet on the company's share price falling was thought by some observers to be a factor.

Other UK banks also did well. Royal Bank of Scotland closed up 11.2% and Barclays gained 11.8%. They were helped by overnight news that US lenders Washington Mutual and Wachovia reported no need to raise fresh capital to strengthen their balance sheets.

BBVA is Spain's second largest bank and has a strong Latin American presence, although it also has Chinese and US interests, particularly in states such as Texas and Alabama. The company has said it would like to expand further in North America.

It has been present in the UK since 1918 but has only three branches. HBOS declined to comment on the rumour which comes a week after fellow Iberian bank, Abbey owner Santander, agreed a deal to buy Alliance & Leicester for £1.26bn.

Ken Murray, chairman of specialist financials fund manager Blue Planet, cast doubt on the rumours. "I would be frankly astonished if BBVA were to bid for HBOS. It is so completely at odds with its strategy of recent years." He added that, although Spanish banks faced the fall-out from a diving domestic property market, they remained in better shape than many US and UK banks. "Most of the problems in banking are related to capital market operations of banks and the American mortgage market."