Largest Us Lender in Talks Over Rescue Package

America's biggest mortgage lender, Countrywide Financial, is in advanced negotiations to sell itself to Bank of America in a deal which could rescue its crippled business from the brink of bankruptcy.

Countrywide's shares rocketed by 51% to $7.75 today as news of the discussions leaked into the market. But the Californian firm, which provides one in seven American home loans, is still worth little more than $3bn (£1.5bn) compared to $26bn a year ago.

Neither company would comment today, even after an intervention from the New York Stock Exchange, which asked Countrywide if there was any explanation for such an unusual movement in its stock.

Countrywide is widely viewed as one of the key culprits behind America's sub-prime mortgage crisis. It was a leader in peddling loans to low-income home buyers and is under investigation by US prosecutors for allegedly misleading customers about their repayment commitments.

For Bank of America, the cost of a deal would amount to less than three months' profit. The North Carolina-based institution already has close ties with Countrywide - it propped up the mortgage specialist in August with a $2bn investment in convertible stock.

"It is very logical that Bank of America would be interested in buying Countrywide, especially with the valuation that has been placed on it in the marketplace," banking analyst Robert Napoli of Piper Jaffray told the Los Angeles Times.

"It's not a lot of money for BofA to get control of Countrywide, and they've wanted to get into the mortgage business in a bigger way for years."

The potential merger cheered up Wall Street in late trading, helping to push the Dow Jones Industrial Average up by 117 points to 12,853. The rise ended a gloomy mood which has preoccupied the market since the new year.

There was a particularly dramatic bounce for airline stocks following unconfirmed reports that America's third largest carrier, Delta Airlines, is set to kick start long awaited consolidation by merging with either United Airlines or Northwest Airlines.

The takeover buzz surrounding Countrywide arose just two days after the company was forced into a hurried statement insisting there was "no substance" to rumors that it was about to file for protection from its creditors.

Countrywide reported a $1.2bn loss in October - its first quarter in the red for 25 years. The company has cut more than 11,000 jobs and at the height of panic about the credit crunch last summer, several of its offices were besieged by anxious customers keen to withdraw their savings.

Angelo Mozilo, the chairman of Countrywide, is under investigation by the Securities and Exchange Commission for selling shares in the run-up to the sub-prime crisis.

In recent months, Countrywide has won praise from community groups for designing financing packages to keep struggling customers in their homes. Mr Mozilo recently revealed that a quarter of the company's staff were working on "loss mitigation" to fend off foreclosures and he has put pressure on the Bush administration to make more effort to tackle the home loans fiasco.