SHARES in Barclays surged by as much as ten per cent after speculation of a bid from US financial institution Citigroup swept through the London market.

Dealings in the group's shares were the heaviest of any blue-chip company as investors bought the stock hoping for a takeover deal.

The interest also forced up the share prices of other major banks after the sector had earlier been languishing in negative territory.

Barclays shares later settled back to stand at 500p, up 18p on the day.

Barclays declined to comment on the speculation, which linked Citigroup to a bid in the region of 700p a share, which would be worth about £45bn.

The world's biggest bank has been seen as a potential bidder as it is thought to be keen to boost its presence in the UK market, while Barclays also has the lure of an attractive investment banking business. Citigroup has 275,000 employees and manages 200 million customer accounts worldwide.

Jeremy Batstone, of Charles Stanley stockbrokers, said: "I believe there may have been interest in the past, but now is not the right time. We are looking at a sector that is reporting peak levels of profitability and it is difficult to see how those levels can rise as aggressively again."

The speculation emerged a day after Barclays chief executive Matt Barrett announced a 23 per cent rise in half-year profits to a record £2.4bn.

Spanish bank Santander Central Hispano recently sparked takeover interest in the sector with an £8bn offer for Abbey.