The US Government has asked big banks, including HSBC, to put together a rescue buyout of Washington Mutual, the American lender, according to a report.

The banks involved include Wells Fargo, JPMorgan Chase and HSBC but the report in the New York Post said that no deal talks were being held between the banks and WaMu.

Shares in WaMu, which is America's largest savings and loan institution, have plunged by 49 per cent over the past month and 83 per cent this year. Its shares today fell by a further 10.17 per cent to $2.12.

The Government's attempt follows its rescue last night of American International Group (AIG), the troubled insurance group, and once one of America's biggest, for $85 billion.

WaMu's bank's non-performing assets - bad debts - jumped to 3.62 per cent in the second quarter, up from 2.87 per cent. It has been forced to put aside more than $8 billion to cover bad debts in its mortgage book.

Uncertainties about the make-up of the mortgage book is an obstacle to finding a buyer or buyers for WaMu, the paper said, quoting an unnamed source saying that there may only be a "minimum amount of value" in WaMu's loans business.

Meanwhile, US stocks fell in early New York trading, despite the AIG rescue, as new data showed that builders began work on fewer new homes in August than at any time since January 1991 and fears persisted about the outlook for financial groups.

Starts on new homes fell by 6.2 per cent to an annual rate of 895,000, well below the analyst consensus forecast of 950,000.

Applications for new building permits fell by 8.9 per cent to an annual rate of 854,000 in August, the lowest level since February 1991 and below the consensus forecast of 930,000, the department said.

The Dow Jones fell by 257.53, or 2.3 per cent, to 10,797.01 points and the Standard & Poor’s 500 declined by 1.54 per cent to 1,194.85 after the US Commerce Department said that the number of housing starts fell to a 17.5 year low last month.

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