City whistleblowers 'to be given immunity' as Chancellor orders crackdown on market-rigging

City whistleblowers could soon be offered immunity from prosecution under plans to beef up the UK's financial watchdog, Chancellor Alistair Darling indicated today.

The Government was urged to grant US-style powers to the Financial Services Authority in the wake of last week's slump in a major bank's share price amid claims of market manipulation.

A London-based hedge fund was reported to have circulated rumours about UK companies, including Britain's biggest mortgage lender HBOS, in a bid to make money when their share prices fell.

Amid global financial turmoil, Mr Darling said he wanted to see a crackdown and the authorities needed "the tools to do the job".

"I can't allow us to get into a situation where people quite deliberately manipulate markets for personal gain and with the potential to destabilise the financial system," he said.

"We have a duty to ensure we have clean and efficient markets. We will come down hard on people manipulating the system."

Mr Darling told the Guardian: "People are getting away with it and the time has come for us to start looking at it again.

"If a handful of people are up to no good we have to make sure the authorities have the tools to do the job."

The Guardian said FSA investigators would be given the "specified prosecutor" status already enjoyed by tax officials, the Serious Fraud Office and the director of public prosecutions.

A spokeswoman for the FSA, which has asked for the powers, welcomed the move, part of a package of measures designed to tackle the present worldwide period of uncertainty.