Standard Chartered shares rose 1.75 per cent in Hong Kong yesterday to HK$291, putting the value of Temasek's total investment in the bank at about HK$73.83 billion. In London. the stock leapt 1.36 per cent to GBP18.60 (HK$287.58) in the afternoon.

Temasek bought its first stake in Standard Chartered in March last year and raised its holdings seven times this year.

Temasek management said they felt comfortable with the current shareholding level.

'As a financial investor, we are not involved in the bank's board and management,' said Simon Israel, an executive director at Temasek, in an e-mailed statement yesterday.

He did not comment on a newspaper report last week that Temasek may invest US$5 billion in Merrill Lynch, the world's largest brokerage that has announced US$8.4 billion of write-downs on mortgage-related investments and corporate loans.

A spokeswoman at Standard Chartered said the stake purchase reflected its long-term relationship with Temasek and was a vote of confidence in the management.

However, the increasing Temasek stake means Standard Chartered, Hong Kong's fourth-largest lender, may lose its status as one of the three note-issuing banks in the city.

In July, the Hong Kong Monetary Authority said the three banks - Hong Kong and Shanghai Banking Corp, Bank of China and Standard Chartered - would not be authorised to issue banknotes if more than 20 per cent of their shares were controlled by a foreign government.

'It is highly likely Temasek will raise its stake in Standard Chartered to above 20 per cent,' Kim Eng Securities analyst Ivan Li Sing-yeung said.

'After all, Temasek is not concerned about that, since Standard Chartered has been gradually withdrawing from Hong Kong and focusing more in emerging markets such as India, the Middle East and China.'

Standard Chartered makes two-thirds of its profit in Asia. It recorded double-digit growth in earnings from the region, including South Korea, India and the Middle East, in the first six months of the year.

'The stake increase by Temasek could boost investment returns in Standard Chartered. It is also possible for Temasek to sell its shares to other Chinese lenders,' said CCB International analyst Bonnie Lai.

Temasek was reported to have approached Bank of China, China Construction Bank Corp and Industrial and Commercial Bank of China to sell its stake in Standard Chartered.

Separately, Standard Chartered will call off the sale of its Indian mutual fund business to UBS, which is unlikely to get approval from regulators in time to meet Standard Chartered's timetable, according to a media report in India.