Oct. 10 (Bloomberg) -- Northern Rock Plc, bailed out last month by the Bank of England, had a record gain in London trading after a Monaco-based hedge-fund manager said it bought a stake.

The bank rose 32 percent to 273.5 pence in London trading, valuing it at 1.15 billion pounds ($2.35 billion) after SRM Advisers said it bought a 4.03 percent stake. The shares are down 78 percent this year as analysts including London-based Simon Willis at NCB Group have speculated Northern Rock may be worth ``somewhere close to zero'' in a liquidation.

``There is value there,'' Philip Price, chief operating officer at SRM Advisers, said in an interview from Monaco today. ``The company should be allowed to survive.''

Since calling on the central bank for emergency credit last month, Newcastle, England-based Northern Rock has attracted investors including State Street Global Advisors, RAB Capital Plc and Artemis Investment Management Ltd. RAB Capital head Philip Richards has said the bank should be ``allowed to continue as a business and recover,'' estimating its share price could rise to 600 pence.

D.E. Shaw & Co. holds a 1.05 percent stake in Northern Rock, the New York-based hedge fund manager said in a statement today.

A surge in borrowing costs forced Northern Rock to announce a Bank of England rescue on Sept. 14. The government yesterday extended a guarantee on customer deposits until financial markets become less volatile. The central bank also widened the range of assets that Northern Rock can use to secure its credit line.

`Darkest Hours'

``Compared to the darkest hours, things look a bit brighter now,'' said Richard Hunter, head of U.K. equities at London-based Hargreaves Lansdown Stockbrokers. ``Whether that means a partial breakup of the company or an acquisition, as time goes by, the word fire sale goes out the window.''

Northern Rock Chief Executive Officer Adam Applegarth has struggled to keep the bank in business as buyout firms including J.C. Flowers & Co. consider takeover bids.

To contact the reporter on this story: Ben Livesey in London

blivesey@bloomberg.net

Last Updated: October 10, 2007 12:11 EDT