By Myles Neligan and Frank Prenesti

A spokesman for Brown denied it was an emergency meeting, but pressure is mounting on the government to take swift action to restore confidence.

Governments around the globe are fighting to unfreeze lending and borrowing brought to a halt by fears of hidden losses. In the latest of a series of emergency moves, Iceland's authorities took over the country's second-largest bank and Russia announced an aid package for its financial sector on Tuesday.

News that Darling met bank officials on Monday evening sent shares in major banks sharply lower on Tuesday as investors feared their holdings might be diluted by a big government stake. However the cost of insuring banks' debt fell on hopes any new capital would take the pressure off existing debt.

Share prices fell even further following the announcement of the meeting between Brown and finance officials on Tuesday.

"Based on intensive discussion in recent weeks, the purpose of this latest meeting is to consider further the government's proposals for both the on-going action we are taking to stabilize the financial system and our proposals for long-term reform," Brown's spokesman said.

Asked if this was an emergency summit, the spokesman said: "I would not characterize it like that all. I think it's the latest in a series of meetings."

He said the meeting, which will be attended by BoE Governor Mervyn King and FSA head Adair Turner but not by banking executives, was prearranged and "not put in the diary today."

Shares in the country's major banks fell on the news.

Royal Bank of Scotland (RBS) was the biggest UK sector loser on Tuesday, falling 41 percent to its lowest level since late 1993. Shares in Lloyds TSB were 11.4 percent lower and Barclays shares dropped 14 percent.

CAPITAL INJECTION

Industry sources said earlier the government was expected to hold more talks with banks this week over a possible multi-billion pound injection of public funds as the credit crisis tightens its grip on Europe's main financial center.

According to a BBC report, RBS, Lloyds and Barclays estimate they may need 15 billion pounds ($26 billion) each to help them get through the crisis, which began in the United States last year when mortgage holders began defaulting on payments.

JP Morgan analysts calculated last week that major British banks had a total capital shortfall of 46 billion pounds, according to the Basel II capital adequacy standard.

However, bank officials were keen to dismiss suggestions they had asked for extra money.

"Contrary to press rumors, Barclays has not requested capital from the government and has no reason to do so," Barclays Chief Executive John Varley said. RBS released a statement saying much the same.

DEFAULT SWAPS TIGHTEN

Barclays' five-year senior credit default swaps were about 55 basis points tighter from Monday's close, at 195 basis points mid-market, although little turnover was seen.

Five-year senior credit default swaps on RBS were quoted about 30 basis points tighter at 270 basis points.

That signals a lower cost of insuring their debt against default although traders said the market was illiquid.

Short-sterling futures jumped as bank shares tumbled and as weaker-than-expected economic data strengthened demands for a Bank of England interest rate cut later this week.

In Britain's response to the crisis up until this week, Lloyds TSB has agreed a government-brokered takeover of another bank, HBOS, while smaller mortgage lenders Bradford & Bingley and Northern Rock have been nationalized.

RBS raised a record 12 billion pounds in fresh capital earlier this year. Barclays raised 4.5 billion pounds in July from investors including Qatar and Japan's Sumitomo Mitsui and only last month raised a further 701 million pounds from a share sale.

(Additional reporting by Sumeet Desai, Dominic Lau, Natalie Harrison, Joel Dimmock, Daisy Ku, Steve Slater, David Clarke and Golnar Motevalli; Writing by Dan Lalor and Andrew Callus; Editing by Quentin Bryar, Richard Hubbard and Erica Billingham)