Bear Stearns up on talk Buffett may tuck

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Shares in Bear Stearns, the Wall Street bank where the collapse of two hedge funds was an early clue to the seriousness of the credit crisis, soared in afternoon trading on the New York Stock Exchange, amid rumours that the legendary investor Warren Buffett is among those considering buying a big stake.

The stock jumped 8 per cent after a website report that it plans to raise new capital by selling a 20 per cent stake in the company.

The mention of Mr Buffett in particular juiced the shares, since the 77-year-old has a reputation for investing in solid, undervalued assets.

But there were other names of potential investors also mentioned in yesterday's reports, including Bank of America, the financial giant which earlier this summer invested $2bn to prop up America's largest mortgage lender, Countrywide Financial. Two Chinese financial institutions and the US retail bank Wachovia were also named, and earlier in the day a rumour had swept the New York Stock Exchange that UK-based HSBC might also be interested.

A 20 per cent stake in Bear Stearns would cost more than $4bn at the current share price, which closed up $8.76 at $123.

The British currency trader and owner of Tottenham Hotspur football club, Joe Lewis, is Bear Stearns' biggest single shareholder, with a 7 per cent stake he picked up at the height of the concerns over the company's solvency. After yesterday's share price rise, he is now sitting on a paper profit of $135m.

Bear Stearns has been hardest hit from the bursting of the credit market bubble, since it is heavily involved in the origination of the complex debt instruments that have collapsed in value. It has laid off 240 staff in its mortgage lending business and promised additional job cuts on Wall Street. It has been on the ropes since June, when two of its hedge funds collapsed after disastrous bets on the US mortgage market.