HBOS shares closed the day up 17 per cent, a rise of 44p to 305p, amid a broad recovery across banking stocks.

Several traders quoted a market rumour that BBVA is running a sliderule over HBOS, which has underperformed the battered banking sector in the run-up to its £4bn rights issue. The fund raising was taken up by just 8.3 per cent of investors. Both HBOS and BBVA declined to comment. However sources close to BBVA said the Spanish bank was unlikely to make a move for HBOS.

"It doesn't stack up," said one. "Why would a bank half the size of HBOS take it over, how would it fund the balance sheet?"

A takeover of HBOS would be a radical departure for BBVA, Spain's second-largest bank, which has focused its expansion on emerging markets in Latin America and China and in the southern US.

BBVA chairman Francisco Gonzalez has said he is interested in growing further in the US once the market settles down and BBVA has fully merged the four banks it has acquired over there. He has also said he would like to get into business in expanding markets like Russia and Brazil, but possibly by offering services via the Internet rather than by buying banks to get a physical foothold.

BBVA has 35 million customers in Spain, Latin America, China and the US. It has been present in London since 1918, but has only three branches in the capital.

The rumoured interest comes a week after fellow Spanish banking giant Santander, which owns British bank Abbey, agreed a deal to buy mortgage lender Alliance & Leicester for £1.26bn.