SHARES in Royal Bank of Scotland slipped 1-per cent yesterday as investors fretted over speculation the company is seeking to buy a major stake in Bank of China.

The Edinburgh-based lender's stock lost 15p to 1655p, falling for the second day following a weekend newspaper report that it was in advanced talks to spend dollars-4bn (pounds-2bn) to buy up to 20-per cent of China's second-biggest bank.

The Chinese institution has said it is in talks with about 10 potential foreign strategic partners.

City analysts have also suggested RBS could fund the acquisition by off-loading its holding in Spanish bank Santander. Santander's shares were lower on the speculation that RBS could sell its 2.83-per cent stake, dealers said yesterday. The Spanish bank placed its final 2.57-per cent stake in RBS in January following its acquisition of Abbey National last October.

The move fuelled predictions that RBS would follow suit.

While the Santander stake is not regarded as a strategic asset within RBS, the holding is not believed to be burning a hole in the bank's pockets either. However, analysts regard the shares as just one of the obvious assets that could be realised if the bank requires capital to make a move anywhere in the world.

Analysts at broker Fox Pitt Kelton said buying a stake in the Bank of China could amount to about 50-per cent of the free cashf low generated by RBS.

In a research note, the bank said: "Equity investments held by RBS could be liquidated and used to purchase (the stake) and therefore no new equity is likely to be raised in a deal. The goodwill hit is unlikely to be high."

A spokesman for RBS, whose chief executive is Sir Fred Goodwin, yesterday said the bank was unable to comment on market speculation.

Concern about acquisitions has weighed on RBS stock, which has fallen 2.6-per cent in the past two days. In February, Goodwin played down reports linking it to Bank of China, saying it favoured joint ventures to sell products in Asia.

However, speculation about RBS taking a stake in the Chinese bank has refused to die.

A major RBS shareholderwho asked not to be identified told Reuters: "It wouldn't be a complete departure but I think in terms of the scale that has been mooted, dollars-4bn would surprise people, that they were making such a significant investment in what would be a minority stake."

One alternative is for RBS to buy a smaller stake in Bank of China to build relations with the Chinese authorities, but the stock's reaction reflects wariness of the bank's desire to expand, the investor added.

European banks are eager to hook into the rapid economic growth in Asia, with China regarded as most attractive.