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Northern Rock rallies after government guarantee
4:20 AM ET Sep 18

Savers reassured their cash is safe; shares of other U.K. lenders also rebound

By Simon Kennedy, MarketWatch.com

LONDON (MarketWatch) -- Shares in struggling U.K. mortgage lender Northern Rock rallied around 10% Tuesday after the U.K. government stepped in to guarantee all deposits held at the bank.

Chancellor of the Exchequer Alistair Darling made the announcement late Monday in a bid to restore confidence in the bank, which has seen an estimated 2 billion pounds of deposits withdrawn by customers worried they may lose their savings.

"I want to put the matter beyond doubt," said Darling in a statement. "This means people can continue to take their money out of Northern Rock. But if they choose to leave their money in Northern Rock, it will be guaranteed safe and secure."

Northern Rock (UK:NRK) CEO Adam Applegarth was more jubilant about the decision, exclaiming "bloody hurrah," in a memo to staff, who have been struggling to cope with queues of customers demanding their money.

The bank also took out full-page advertisements in several U.K. newspapers Tuesday apologizing to customers and emphasizing that branches are "open for business as usual."

Shares in the bank climbed 9.6% at 310 pence in early trading after slumping over 50% in the previous two sessions.

The sell-off was driven by news late Thursday that Northern Rock had to arrange an emergency loan facility with the Bank of England after the credit crunch left it unable to raise financing in the market.