LONDON (Reuters) – British bank Lloyds TSB has agreed to buy rival HBOS Plc to create a £28 billion ($50 billion) mortgage company, reports said yesterday, the latest troubled bank to be forced into the arms of a better-funded rival.

The BBC said HBOS, Britain's biggest home loan lender, would be bought for 232 pence per share, valuing it at over £12 billion. Both boards had agreed the all-share takeover, the BBC said, citing sources.

HBOS had said earlier yesterday it was in "advanced talks" with Lloyds after its shares were battered for a sixth consecutive day on mounting fears about its funding position. Its shares still fell 19 percent yesterday to 147.1 pence,

HBOS declined to comment and Lloyds cound not be reached.

A takeover would mark another chapter in a dramatic shake-up of the global financial landscape as firms with weaker balance sheets or funding strains are swallowed by stronger rivals, with deals encouraged by authorities worried about a wider meltdown.

Boards of the two banks were meeting late yesterday and a deal was expected to be unveiled today. Prime Minister Gordon Brown was involved in negotiating the deal, the BBC said.

Alistair Darling, UK finance minister, said the government was "keeping very closely in touch" and he expected commercial negotiations between the two banks to go on into the night.

"They've got to decide what's best for the two banks concerned," Darling told BBC television. "My job is to make sure that we do everything possible at this time, especially when you are seeing difficulties all over the world, that we help homeowners, we help savers by maintaining the stability of the banking system."

The government is expected to smooth any competition concerns about the tie-up on grounds that it would help financial stability.

Lloyds is Britain's fifth-biggest bank and HBOS is the sixth-biggest, but they rank fourth and first for mortgage lending and would have a 28 percent share of home loans.

HBOS has lost more than half its value in the last six days — its shares crashed from 308.5 pence on September 9 to an all-time low of 88p earlier yesterday.

Lloyds shares ended unchanged at 279.75p, valuing it at almost £16 billion. The DJ Stoxx European bank index fell 4 percent as the sector was hit hard again.

A deal could be attractive for Lloyds as it could cut costs, increase market shares and lift margins to offset the prospect of higher bad debts as the economy worsens, but this would depend on the terms of any deal, analysts said.

"It would be a good deal for Lloyds. We haven't been allowed to have bank mergers for competition reasons, but there's a huge amount of overlap and costs that can be taken out," said Alan Beaney at Principal Investment Management, which holds Lloyds and HBOS shares.