Bank shares fluctuated this morning after the ban on the short-selling of UK financial sector shares was lifted.

There had been fears that the midnight expiry of the short-selling ban would put the sector under further pressure.

However, Royal Bank of Scotland, the part-nationalised lender, saw its shares rise 7.52 per cent to 42.9p in early trading while Barclays swung between losses and gains with its stock edging ahead to 131.2p.

Shares in Lloyds TSB, which is set to complete its takeover of HBOS, owner of Halifax and Bank of Scotland, rose 2.9 per cent to 106.5p. HBOS shares were suspended pending the completion of the deal.

MPs including John McFall, chairman of the Treasury Select Committee, called for the ban to be maintained.

But the Financial Services Authority, the City regulator, which put the restriction in place in September, said that it would keep rules requiring the disclosure of significant “short” positions for an extra six months, until June 30, in an effort to help troubled stock markets.

Short-selling is a process whereby investors, typically hedge funds, borrow shares in a company which they then sell in the hope of buying them back later at a lower price.

The ban was introduced in the days after the collapse of Lehman Brothers, the US investment bank, to stop shares in UK banks from being battered as fears over the strength of lenders swept trading floors across the globe.

However, shares in HBOS had already been driven down by short-sellers months before the ban was introduced as rumours circulated that the bank was facing a liquidity crisis.

The ban has been lifted as ministers are set to hammer out more measures over the weekend to boost lending by banks.

Ministers and officials from the Treasury and the Bank of England are thought to be working on proposals for fresh capital injections into banks, for relaxation of rules on balance-sheet strength and for government guarantees of lenders' toxic assets.

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