Investors in Lloyds endured a rollercoaster ride today as the City debated the banking group's possible nationalisation.

Shares in the troubled lender dived more than 20% in early trading, to 48p, before bouncing as high as 67p, a rise of 9%.

They later settled at 63.3p, up 1.9p on the day, with more than 100 million shares changing hands — far more than usual.

This followed a 32% crash on Friday when Lloyds admitted that newly acquired HBOS lost nearly £11 billion last year.

The scale of the losses at the Halifax and Bank of Scotland owner sparked frenzied speculation — strongly denied by Lloyds today — that the bank would have to go to the Government for further funding or even seek nationalisation.

The taxpayer already owns a 43% stake in the superbank following a £17 billion bailout last year, and analysts were today split over its future.

Sandy Chen of Panmure Gordon said: “Although we expect Lloyds to record further big losses in a dire environment, we do not expect this to force a full nationalisation.

“If Lloyds does escape full nationalisation, which we expect it will, the fundamental competitive advantages from a dominant position in UK retail banking should begin to kick in.”

However Jonathan Jackson of Killik & Co said: “We believe there are more sizeable writedowns to come, given the group's exposure to the deteriorating UK economy and, in particular, HBOS's exposure to commercial property, private equity and housing. As a result, speculation surrounding a further capital injection is unlikely to go away.

“Friday's statement probably increases the prospect of nationalisation given private investors are unlikely to have much appetite to invest. We would continue to avoid the shares.”

The crisis at Lloyds today took its toll on RBS shares, which fell 0.6p to 21.2p. Barclays rose 31/2p to 104p, while HSBC, seen as the strongest UK bank, was up 11/2p at 5311/2p.

Matt Buckland, a dealer at CMC Markets in the City, said: “There's no ­escaping those shock figures from Lloyds on Friday, and further talk of nationalisation here will do little to cheer the banking sector.”

James Hamilton of Numis Securities said if the recession is as bad as feared “then all the UK banks, possibly with the exception of HSBC, are bust” — making nationalisation vital. “Everything is falling off a cliff,” he said. “It's not just Lloyds: Barclays has well-documented problems, as does RBS.”

Lloyds shares have lost 77% since it agreed to buy HBOS last September. It is now worth just £10.3 billion. The slump and the scale of the losses at HBOS have raised questions about the future of Lloyds chairman Sir Victor Blank and chief executive Eric Daniels. It is also embarrassing for Gordon Brown who helped broker the deal.

Lloyds today insisted it did not need further funding from the Government and dismissed talk of nationalisation as “tosh”. It said its tier one capital ratio was within the range of 6% to 6.5% — well above the minimum 4% set by regulators.