LONDON, England - SHARES in Royal Bank of Scotland rose sharply yesterday 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 per cent at 28.88 per cent around 1:00 pm, falling back from a 6.7 per cent gain earlier.

The Treasury said UK Financial Investments Ltd, which holds the government’s stake of 82 per cent in Royal Bank of Scotland Group and just under 40 per cent 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 UK 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 yesterday’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.