|PIC1|Financial authorities made a rare public move to calm jittery markets on Wednesday, saying they were not aware of problems at any UK bank and would investigate share price moves sparked by unfounded rumours.

Despite attempts by global policymakers to improve liquidity and restore stability after the weekend rescue of U.S. bank Bear Stearns, UK banks remain under pressure with rising funding costs adding to the threat of a UK economic slowdown and more losses on risky U.S. assets.

HBOS, Britain's biggest mortgage lender, bore the brunt of the rumours, with its shares plunging 17 percent to a record low of 398 pence at one point.

HBOS, owner of the Halifax brand, dismissed the speculation, saying it had an "exceptionally strong balance sheet" and continued to access wholesale funding. Its shares pared earlier losses but still closed down 7 percent at 446.25p.

The Bank of England, which has come under fire for failing to react quickly enough to the near collapse of Northern Rock six months ago, took the rare step of commenting on the rumours.

"No meetings have taken place or been scheduled to discuss problems with any institution in the UK," a Bank spokesman said.

The financial services regulator, which has also faced criticism over the Northern Rock debacle, confirmed an earlier Reuters report that it would probe the latest share sell-off.

"We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them," the Financial Services Authority (FSA) said in a statement.

Authorities are concerned that speculators can benefit from wild gyrations in share price and spread false information. Investors can profit by selling shares "short" before buying them back later.

"With panic still gripping the markets, investors seem to be attaching more credence to the scaremongers than would be the case in more stable times," said Martin Slaney, head of derivatives at GFT Global Markets.

Shares in other banks, including Alliance & Leicester and Bradford & Bingley, were also hit by the rumours. Lloyds TSB was cited as facing problems, but the bank said it was funding its operations strongly and it clawed back an early 3 percent fall and ended higher.

Policymakers showed they have an increasingly watchful eye on the situation.

Bank Deputy Governor John Gieve, whose remit is financial stability, has been replaced at a speech on Thursday so he can stay in London to monitor market developments. But a spokesman said rumours that senior Bank executives had cancelled a trip to the Far East due to a possible problem were "complete fantasy".

CEOs or other senior executives from the top five banks are due to meet central bank officials on Thursday, but the spokesman said it was organised last week as part of regular discussion on issues.

HBOS HIT HARD

Concerns about a faltering economy, exposure to risky assets and high funding costs remain at the heart of the weakness across bank stocks, and interbank borrowing rates nudged higher for a ninth straight day despite a 75 basis point cut in U.S. interest rates late on Tuesday.

Northern Rock's crisis was sparked by its failure to raise funds in wholesale markets following a credit crunch and there are worries there could be more casualties.

A spokesman for HBOS said: "We're a very diversified business with an exceptionally strong balance sheet...We continue to access wholesale markets whenever we feel it is appropriate to do so."

HBOS shares have tumbled 39 percent this year, compared with a 15 percent fall for the UK bank sector.

Several analysts said the extent of HBOS's early fall appeared irrational given its reassurance on capital, but it faces a tougher outlook than most rivals.

The interbank cost of borrowing three-month sterling hit a fresh high for the year of 5.98 percent. Lending has slowed amid worries about counterparty risks, making banks wary about lending to one another.

The cost of insuring HBOS's debt against default rose sharply and then retreated to end slightly lower on the day.

Credit default swaps on five-year senior HBOS debt traded at about 244 basis points, according to Markit, meaning it cost 244,000 euros (192,000 pounds) per year to insure 10 million euros of its debt.

They had earlier widened to 265 basis points from 249 basis points on Tuesday, double its cost at the start of the month and compared with just 7 basis points a year ago.

The Bank said on Wednesday it had not made any loans through its standing facility in the previous trading session.