Barclays, the UK bank, confirmed today that it is seeking to raise what is understood to be up to £4 billion through a rights issue, which would underwritten by some of the world's biggest sovereign wealth funds.

The bank released a statement shortly after 7am to say that the option to raise money was "under active consideration" after The Sunday Times reported yesterday that it was close to a deal.

It confirmed that a placing and pre-emptive offer to existing shareholders was under consideration.

Barclays also issued a mini-trading statement, in which the bank said that group pre-tax profit in May was "well ahead of the monthly run rate for 2007" with retail and commercial banking the source of the strength. Investment banking and fund management operations were in line with earlier months.

Shares in the bank rose 8.81 per cent, up 28p, to 346p in early trading as the market reacted with relief to the announcement. Barclays' stock also rose on the prospect that overseas investors would buy into the bank at a premium to last Friday's close, implying they believe the bank is worth more than the City thinks.

The confirmation will put an end to the uncertainty surrounding the bank, which has been expected to raise new capital for several weeks.

Barclays move to raise cash is the latest in a series of capital raisings around the world by banks that have been hit hard by the credit crisis.

The placing, to be completed within a fortnight, will involve issuing new shares to investors at a premium to Friday’s closing price of 318p. This would value the bank at £20.9 billion.

The intention is to ensure that the value of shares owned by existing investors in Barclays is not diluted. It is likely they will be offered the chance to buy the same percentage of shares in the placing, but it will be underwritten by the sovereign funds.

It is thought that at least six potential investors are in talks with Barclays and it is likely that three of these interested parties will be selected.

The first opportunity is being offered to the China Development Bank and Temasek, a Singaporean government investor. Both of these funds have already bought shares in the British bank at a price higher than 318p and are sitting on big paper losses.

This will give them an opportunity to buy in at a lower price.

According to an adviser acting for a sovereign wealth fund, all the interested parties are carrying out due diligence and the fundraising could be completed within the next 14 days.

Barclays is the last of the big British banks to raise capital. Royal Bank of Scotland has raised £12 billion and HBOS, which was formed from the merger between Halifax and Bank of Scotland, will this week publish its rights issue document to raise £4 billion.

Unlike RBS, Barclays does not require this capital to shore up its balance sheet and does not intend to cut its dividend, which yields 10 per cent. However, Barclays wants to increase its core tier-one capital ratio to over 5.25 per cent, compared with its present level of 5.1 per cent.

The bank intends to put the money raised into developing the business. In April, at the group’s annual meeting, Frits Seegers, chief executive of Barclays’ global retail and commercial banking division, said the group was “wide open” for new mortgage business at a time when other lenders were reining back because of the credit squeeze.

Barclays is also expanding into new areas, such as Pakistan, where it has obtained a licence from the State Bank of Pakistan to open 10 branches. To help this, it has appointed managing directors to spearhead growth in India, the Middle East and north Africa, southern Africa, Russia, Pakistan and east and west Africa.

In the United Arab Emirates, Barclays is the second-largest issuer of credit cards after launching there three months ago.

Barclaycard is stepping up its expansion into America after acquiring Juniper, a card business, nearly four years ago. The bank is now the eleventh-largest issuer of cards in America and the second-largest in South Africa.

Despite the difficulty in the capital markets, the bank’s investment-banking arm, headed by Bob Diamond, has been a strong profit generator.

There is much interest in how Diamond is going to grow the business in America, where he will now spend most of his time. Diamond was one of the main supporters of Boris Johnson in his campaign to be mayor of London but he does not intend to have any further role with Johnson’s office.

Banking analysts say some of the big investment banks on Wall Street could raise more capital. Last week, Lehman Brothers raised $6 billion (£3 billion) after it reported a $2.8 billion second-quarter loss.

There is also an expectation within banks that there will be a round of consolidation in the industry as the well-capitalised banks buy those that have been laid low by the credit crunch.

This week HBOS is expected to detail the level of asset writedowns from its exposure to the housebuilding and commercial property market. The bank has £3.3 billion of loans outstanding to the British housebuilding sector as well as a number of equity investments. The writedown, which is not expected to be big, will allay City fears that it is overexposed to the sector.

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