Shares in Northern Rock rebounded today after the Government guaranteed £28 billion of deposits at the crisis-hit mortgage lender.

The Bank of England also pumped an extra £4.4 billion into the markets to help to restore general confidence drained by the Northern Rock furore.

Northern Rock's share price initially rose 11 per cent before falling back to an 8.4 per cent increase to 306½p, putting the brakes on a 58 per cent fall since last Thursday, when it was forced to go the Bank of England for emergency funding.

The mortgage lender announced today that customers were queuing outside just four of its 76 branches, in stark contrast to the past few days when many sites were inundated by panicked savers.

BACKGROUND

• Goldman Sachs steps into Northern Rock crisis

• ‘We did not let down our investors’ says chairman

• Northern is not just a bank, it’s our bank

• Northern Rock still lending ‘recklessly’

• Star investor stays bullish on banks

Man who stepped into limelight on a dark day

Alistair Darling, the Cabinet stalwart who shunned headlines, has become the Chancellor facing down a grave economic crisis

• Narrow Squeak

Brown points way to election fight

In an exclusive interview, the PM explains why ‘intensifying’ health service reforms will be the cornerstone of his appeal

• The most damaging run has been on our trust in you, prime minister

• Full transcript: Gordon Brown interview

• The Trivial Pursuit question Gordon is wary of asking voters

Related Internet Links

• Northern Rock company information

• Northern Rock share price charts

• Northern Rock company forecasts

Related Links

• Government's £28bn cheque to stop bank run

• Crisis of confidence needs firm action

• Savings are better protected in the US

The bank also said that customers who were charged for withdrawing cash will be reimbursed if they put the money back into the same type of account at Northern Rock by October 5.

The Bank of England said today that the extra funds it had made available to the banking sector were to "offset the disturbance to conditions in the short-term money markets" caused by providing the lifeline to Northern Rock.

Mervyn King, Governor of the Bank of England, who today met Alistair Darling, the Chancellor, and the Financial Services Authority (FSA), has been criticised over the lack of extra liquidity provided to Britain's banking sector.

But today, Mr King received backing from Gordon Brown and put an extra £4.4 billion into the British banking system, ahead of the same sum being made available on Thursday.

Last night’s intervention by the Government to stem the tide of customer withdrawals from Northern Rock – thought to be upwards of £2 billion – lifted other banks, which have seen their share prices suffer on the back of the troubled lender's woes.

Alliance & Leicester's shares rose by 24.25 per cent to 745½p, making up for a 21 per cent fall in its stock price yesterday, which wiped £1.2 billion off its market value.

Bradford & Bingley also recovered, up 6.27 per cent to 296½p, while mortgage lender Paragon's shares rose 5.3 per cent to 301p.

Hector Sants, chief executive of the FSA, repeatedly told the BBC's Today programme that Northern Rock was "solvent" and denied that there had been a run on the bank since it was "still open for business".

Mr Sants also said: "Customer confidence has clearly been eroded but we need to consider how that has come about."

Mr Sants refused to answer repeated questions about precisely when the FSA, which is working in conjunction with the Bank of England and the Treasury, began discussions with Northern Rock about the state of its business.

Northern Rock said in a statement: "The Chancellor's statement makes it clear beyond any doubt that all savings in Northern Rock are safe and secure. Consequently, anybody who is in a queue outside a branch, or who is trying to access an online account can be fully reassured that there is no cause for concern whatsoever."

It emerged last night that Lloyds TSB had been in talks with Northern Rock about a takeover as recently as last week, but was stopped from proceeding with the deal. Northern Rock was then forced to go to the Bank of England for funding. So far no other institution has come forward with a takeover bid.

Northern Rock said: “Northern Rock is not in discussion with any other party at the present time. However, the board is aware of its fiduciary duty and is actively considering all strategic options in the interests of shareholders, customers and other stakeholders."

Commenting on the effect of the current turmoil on the housing market, Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said there was a 90 per cent chance Britain would not find itself in a similar crisis as the early 1990s, when inflation had peaked and interest rates stayed at 15 per cent for 12 months.

Mr Rubinsohn said house prices were most likely to remain flat over the next years, though there could be spurts of growth as well as falls. "It is incredibly difficult to read," he said. "But the key thing is that the economy is in good shape."

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive