Shares in Northern Rock rocketed yesterday as one of the hedge fund world’s most respected traders took a £35 million “up” bet on the stricken bank’s fortunes.

Jon Wood, the Monaco-based founder of SRM Global Master Fund Partnership, revealed that he had built a 4.03 per cent interest in Northern Rock.

An extraordinary 58 million shares in the bank changed hands in 81,800 separate trades, accounting for around one eighth of the entire London share market turnover yesterday.

The future for Northern Rock is rapidly turning into one of the great speculative bets of the moment, pitching some of the most highly regarded hedge funds against one another.

Mr Wood joins RAB Capital’s Philip Richards as a bull of the shares, while GLG Partners, until at least Tuesday, had taken the opposite view, positioning itself for further falls in the shares.

SRM said it had most recently purchased 1.99 million contracts for difference in Northern Rock at 199p, earning instant paper profits after yesterday’s 67p surge in the shares to 273½p.

The bounce in the shares also appears to put RAB back “in the money”. It has accumulated a 6.6 per cent stake in Northern Rock at an average price thought to be about 250p.

However, some of GLG’s recent bets look to have cost it money. It was betting that Northern Rock shares would fall further when they were as low as 140p.

Some traders attributed the strong rise in the bank yesterday to bears being forced to close out positions. Some have been scrambling to find stock after short-selling without borrowing stock and then being required to deliver shares they do not own.

Mr Richards told The Times yesterday that he was still confident of Northern Rock’s worth.

He said: “It’s not difficult to see a net asset value of 450p a share. The stock could therefore trade at £6 in a normal market. Given the social costs of allowing Northern Rock to fail, politicians are starting to see the benefits of reestablishing a normal market.”

Supporters of Northern Rock say letting the bank fail with the loss of 6,000 jobs could be costly to the public purse in terms of lost taxes and extra welfare payments.

They argued it also deserved to survive because of its role as a low-cost mortgage provider.

The Bank of England has given the bank extra breathing space to find a solution or rescue bidder, relaxing its rules on the collateral that it will accept in return for loans to Rock, which have already reached £10.7 billion.

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