Shares in Royal Bank of Scotland rose sharply on Tuesday following a report that the government was negotiating to sell part of its majority stake to a Middle East sovereign wealth fund.
Though the Treasury said no sale was imminent, RBS shares were up 4.1 percent at 28.88 percent around 1 p.m., falling back from a 6.7 percent gain earlier.
The Treasury said UK Financial Investments Ltd., which holds the government's stake of 82 percent in Royal Bank of Scotland Group and just under 40 percent of Lloyds Banking Group, meets with a range of possible investors, but was not negotiating a sale.
The government bailed out RBS and Lloyds during the financial crisis of 2008 to prevent the banks from collapsing. At the time, RBS was on the brink of running out of cash before the government stepped in.
"The aim is to repair and return RBS to full health so that it is able to support the U.K. economy in the future, and the current strategy is working to achieve that," the Treasury said in a statement. "The government's policy has always been to return RBS to the private sector, but only when it delivers value for money for the taxpayer."
Prime Minister David Cameron's office also insisted no deal was being discussed.
The surge in the share price followed Monday's report by the BBC that the government was negotiating a sale with sovereign wealth funds in Abu Dhabi.
Despite Tuesday's rise, the price is some distance short of the 50.53 pence per share that taxpayers spent to bail out the bank.
Andrew Tyrie, a Conservative Party lawmaker and chairman of Parliament's Treasury Select committee, said his committee would "look closely at the terms of any sale to ensure that it represents good value for the taxpayer."
"It strikes me as sensible that the government looks at opportunities to reduce our stake in RBS somewhat. With such a significant shareholding, there will always be political pressure for further government intervention," Tyrie said in a statement.
Erik Portanger, a spokesman for the Abu Dhabi Investment Authority _ widely considered to be one of the world's largest sovereign wealth funds which injected $7.5 billion into an ailing Citigroup Inc in 2007 _ declined to comment on whether it was involved in discussions about RBS.
Another Abu Dhabi state investment vehicle, Mubadala Development Co., also said it was not involved.
"It is no secret that RBS' determined and energetic Investor Relations team reach far and wide in their quest to broaden _ and eventually normalize _ the company's ownership structure, so it would be surprising to us if Abu Dhabi _ and others _ were not routinely involved in ongoing active discussions," analysts at Investec Securities said in a research note.
Reports of investor interest, they added, is "evidence that, at a price, RBS is eminently investable." They rated the shares as a "buy."
AP reporters David Stringer in London and Adam Schreck in Dubai contributed to this report.