Royal Bank of Scotland shares rose on Tuesday morning after reports Britain had held talks to sell part of its stake to Abu Dhabi investors.
RBS was up 4.6 percent at 29.02 pence - compared with 49.90 pence average price at which Britain acquired its 83 percent stake - to be the top gainer on blue-chip FTSE 100 index <.FTSE>, which was up 0.3 percent.
"Slowly but surely, winding down the government's stake is a better option than a quick-fire sale which would struggle to attract enough buyers of the stock," said Simon Denham, chief executive of spread better Capital Spreads.
"The UAE (United Arab Emirates) has come to the rescue of our banks before when they bought a huge slug of Barclays just after the banking crisis so that it did not fall into the hands of the government.
"If they can turn their investment in RBS into anything like the returns they had on their Barclays shareholding, they will do very well out of it, which, in turn, should be to the benefit of the wider British economy," Denham said.
Britain has owned a stake in RBS since bailing it out with 45 billion pounds ($72 billion) during the 2008 credit crisis, after RBS was left overstretched by its role in the takeover of Dutch bank ABN AMRO.
Britain also owns 41 percent of Lloyds after a similar bailout in 2008, and it has always been the government's intention to sell its holdings back to the private sector.
UK Financial Investments, which holds the government's stakes, has held regular talks with investors about their views on the industry and RBS, which has included meetings with sovereign wealth investors, including from Abu Dhabi, sources said.
Two people said a deal was not imminent, however.
Andrew Tyrie, head of Britain's Treasury Select Committee, told the BBC on Monday that the committee would look closely at any deal to make sure the taxpayer received value. "It strikes me as sensible to take an opportunity if it is there."
(Reporting by Sudip Kar-Gupta; Editing by David Jones)