FRESH takeover hopes and reports of a possible financial lifeline from US bank Citigroup helped lift Northern Rock's share price yesterday.

At one stage yesterday morning, the Newcastle-based mortgage lender's share price had risen by more than ten per cent to more than 174p - its highest level this month.

It followed reports over the weekend that US bank Citigroup was preparing to lend crisis-hit Northern Rock up to £10bn to help it retain its status as an independent group.

The details of the emergency funding are still to be thrashed out, according to reports, but the cost is understood to be below the Bank of England's penal rate, at a minimum 6.75 per cent.

Meanwhile, reports in the US that private equity funds Apollo Management and Blackstone Group had indicated an interest in buying the Gosforth-based lender, raising the possibility of a bid battle, also sent shares higher.

The stock fell to a record low of 132.1p last week, amid fading hopes of a rescue takeover and concerns that a "fire sale" could see the bank picked up at bargain prices.

A potential loan from Citi group should please investors, as it would help stabilise the firm and enable it to keep operating as a single, independent company, minimising the risk of it being snapped up at a discount.

It is also understood that it would allow the current board, including chief executive Adam Applegarth, to remain in place.

Analysts at Royal Bank of Scotland said in a note that while the loan was likely to be at a discount to the Bank of England's rate, it would not be that much cheaper as it was likely to remain linked to the three-month interbank lending rate - currently 6.24 per cent.

The note said: "The sum is also too small to significantly change Northern Rock's fortunes, although the line would allow the bank to limp along for a few more months in the hope that financial markets normalise."

Northern Rock has seen its share price plummet from more than 600p last month, before it was forced to seek emergency funding from the Bank of England, sparking a run on the bank. Shares closed at 158.5p on Friday and last night closed up almost nine per cent at 172.5p.

While Northern Rock has not disclosed how much it has borrowed, analysts believe it could be as much as £10.9bn. It has also slashed its forecasts to a £120m loss next year, a far cry from the profits of £647m expected before the start of the financial turmoil.