The Halifax (HBOS), Britain's biggest Mortgage bank shares crashed by 20% on the opening this morning as suspected hedge fund forced short selling drove the stock price sharply lower to £3.98. This was accompanied by rumours that the bank had to seek emergency funding from the Bank of England and that the central banks staff leave had been cancelled to deal with the crisis.

The Bank of England and the FSA took the unprecedented step of issuing statements that categorically denied the rumours. The FSA went further that it had launched an investigation into the trading activity surrounding HBOS and other banks this morning and accused traders of 'market abuse by spreading false rumours to profit from short-selling.

Chart courtesy of Bigcharts.com

HBOS and other banking stocks shares rallied strongly on the denial of the rumours and FSA investigation, recouping most of the earlier losses with HBOS down 4% on the day at 2pm GMT. The Halifax is britain's top 5 biggest bank, whilst having a sizeable mortgage book, it is not seen at being at any serious risk of following Northern Rock Bank given its large depositor base and relatively strong balance sheet, unlike many other mortgage banks which are in a more precarious position.

This is a developing story and expect much more to be revealed in the coming days as investigations across the atlantic continue regarding hedge fund actions in short-selling of Bear Stearns prior to withdrawal of funds and therefore forcing the share price and investment bank to collapse.

By Nadeem Walayat

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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