New Star Asset Management was at loggerheads with market regulators today after its request to suspend the shares was rejected.

The troubled fund manager told the City at 7am it had asked for its shares to be froze, thinking the UK Listing Authority - part of the Financial Services Authority - would grant the request.

However, the UKLA refused and the shares started trading at 8am, sending shockwaves through the City. New Star admitted at 9am the suspension had not taken place and the stock tumbled as low as 4.11p, a fall of more than 70%, as investors voted with their feet.

It was a major embarrassment for John Duffield as he battles to keep New Star afloat. He was said to be furious the suspension was not granted. New Star asked for the freeze, arguing that talks over a debt-for-equity swap with its banks would create a false market because the likely outcome would see existing shareholders all but wiped out.

Sources said New Star was sure the UKLA had agreed and the refusal came out of the blue. Analysts speculated that the early announcement could have been a high-risk strategy to bounce the authorities into agreeing.

One analyst said: "This sort of thing does not go down well in the City. In my experience, companies have always agreed the shares will be suspended with the UKLA before they make an announcement."

The UKLA refused to comment.