July 23 (Bloomberg) -- HBOS Plc, the U.K.'s biggest mortgage lender, jumped the most since its shares began trading in 2001 on speculation that Spain's Banco Bilbao Vizcaya Argentaria SA may consider buying the bank.

HBOS gained 17 percent to 305 pence, valuing the bank 11.4 billion pounds ($22.8 billion). BBVA rose 4 percent to 12.41 euros in Madrid.

``There are rumors that BBVA is looking at buying HBOS,'' said Mamoun Tazi, an analyst at MFGlobal Securities Ltd. in London who has a ``neutral'' rating on the stock. ``BBVA is better off looking at regions where it can achieve significantly higher returns on assets,'' he said.

HBOS raised 4 billion pounds ($8 billion) in a share sale that was rejected by most of its investors, leaving underwriters Morgan Stanley and Dresdner Kleinwort Ltd. and sub-underwriters to hold or sell about 2.5 billion pounds of HBOS. Today's increase will help underwriters sell leftover shares and reward shareholders who exercised their rights to buy HBOS shares at 275 pence apiece with gains of almost 11 percent in less than a week.

A spokesperson for BBVA and HBOS spokesman Shane O'Riordain both declined to comment.

HBOS was added today to Goldman Sachs Group Inc.'s ``conviction buy'' list of stocks because it's trading at a discount to peers.

`Transformational Deal'

``HBOS offers compelling risk-reward,'' analysts led by James Chappell in London wrote in a research note today. The interim results on July 31 should reassure investors that operating profit before one-time items ``remains intact,'' Goldman said.

The takeover speculation comes after Banco Santander SA, Spain's largest bank, agreed this month to buy Alliance & Leicester Plc in the U.K. for $2.6 billion.

``It would be such a transformational deal for BBVA, and you have to question why they would want to do it,'' said Leigh Goodwin, an analyst at Fox-Pitt Kelton in London who has an ``underperform'' rating on HBOS. ``It's not an obvious strategic fit.''

``It all seems pretty woolly to me,'' said Colin Morton, who helps manage $3 billion at Rensburg Fund Management in Leeds, England. ``You can't rule anything out, but a merger with a big domestic player would mean a change in the government's rules on competition, and a foreign bidder wouldn't be able to get the same cost savings. A sovereign fund could take a stake but it would be odd for them to do it after HBOS has done its rights issue,'' Morton said.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: July 23, 2008 12:01 EDT