Northern Rock shares jumped by a third on Wednesday after Jon Wood, one of the City’s shrewdest traders, confirmed he had built up a 4 per cent stake in the embattled bank through SRM Global, his $3bn (£1.5bn) hedge fund.

The shares rose by 66¾p to 273½p as other investors such as Swedish pension fund Andra AP-Fonden, which now has a 1.3 per cent stake, also bought into the bank.

Mr Wood has said he believes that Northern Rock still holds significant value for bondholders and shareholders.

His stake is significant because he and other investors such as RAB Capital could block a takeover of the bank.

The stock also rose as hedge funds closed short positions. Hedge funds now find it difficult to short Northern Rock because there is so little stock to borrow.

A number of potential private equity bidders such as JC Flowers, Cerberus, Apollo and Blackstone as well as Lone Star are circling the bank.

Northern Rock’s shares were also underpinned by the government’s decision to extend its cast iron guarantee to protect depositors who put in money after September 19. This is likely to make its savings business more attractive to a bidder.

In return for its cash, the Bank of England has also agreed to accept a wider pool of collateral from Northern Rock – including its controversial Together product, which combines a mortgage and loan.

On Thursday Alistair Darling, chancellor, will give a statement on banks in difficulty and will touch on Northern Rock, which has borrowed £11bn from the Bank of England.

Wednesday’s term auction held by the Bank of England was again shunned by the banks for a third week. Again the Bank received no bids for a possible £10bn in three-month loans under its emergency facility.

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