Shares in Countrywide Financial slumped by nearly a quarter yesterday as rumours spread across the markets that America’s largest mortgage group was poised to file for bankruptcy.

The group firmly denied that it faced bankruptcy, helping the shares to rebound, although they remained 13.7 per cent down in early afternoon trading, as the rumours continued to spook investors following Countrywide’s 79 per cent share price decline last year.

"There is no substance to the rumour that Countrywide is planning to file for bankruptcy and we are not aware of any basis for the rumour that any of the major rating agencies are contemplating negative action," a Countrywide spokesman said.

Investors have become increasingly jittery about Countrywide – and mortgage-related companies in general – in recent months as a surge in defaults on high-risk "sub-prime" home loans in America has pushed down the value of houses and related securities.

Countrywide has been forced to tap emergency credit lines and needed a $2 billion bailout from Bank of America last year, fuelling concerns that the group was close to bankruptcy in the worst housing slump in 16 years.

The group reported its first loss in 25 years in its third quarter, but insists it has adequate cash to run its business and that it will make a profit in the fourth quarter and for the full year.

The rumours of Countrywide’s bankruptcy came just hours after it emerged that the mortgage lender faced allegations that it had fabricated documents related to a bankruptcy case in Philadelphia, raising questions about its business practices.

The Countrywide spokesman said: "It is not Countrywide’s policy to create or fabricate any documents as evidence that they were sent if they had not been." He added that he expected the investigation to find nothing improper.

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