RAB Capital has increased its stake in Northern Rock to almost 7.6 per cent, strengthening its hand ahead of a crunch shareholder meeting of the stricken mortgage bank set to take place in a fortnight.

The hedge fund paid just under £30,000 for 350,000 Rock shares on the last day of the year. This takes RAB's total stake to almost 32 million shares equal to 7.59 per cent.

It means that RAB and SRM, a fellow hedge fund, now own a combined 6.7 per cent of Northern Rock.

The two hedge funds have forced a special shareholder meeting for January 15 to push though a resolution that will secure a shareholder vote if the bank wishes to sell more than 5 per cent of its assets or issue 5 per cent of new shares.

The bank has been in trauma since September, when it was forced to seek emergency funds from the Bank of England after failing to borrow from other banks in the wholesale markets.

It is estimated to have borrowed at least £26 billion so far, with UK taxpayers facing a liability of about £57 billion and a growing threat that the bank might be nationalised.

Alistair Darling, the Chancellor of the Exchequor, has agreed that the Treasury will guarantee all retail deposits and much of the bank's wholesale debt obligations.

The future of the bank is still under review, with a decision over two private sector bidders to be made later this month.

RAB, SRM and three other unnamed shareholders have thrown their weight behind a proposal by Olivant, an investment firm run by Luqman Arnold, the former chief executive of Abbey National. This involves Olivant taking a 15 per cent Rock stake and bringing in its own management team.

Sir Richard Branson's Virgin Group plans to inject £1.3 billion of fresh capital and its Virgin Money financial services operations. Following a rights issue Virgin could end up with around 55 per cent of the Rock.

Both proposals involve returning about £10 billion to the Bank immediately. Securing the funds, most likely from Citigroup, Royal Bank of Scotland and Deutsche Bank, has proven difficult, increasing the likelihood of a nationalisation.

Shares in Rock, which tumbled out of the FTSE 100 late last year, edged 0.25p higher to 84.25p today.

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