Shares in embattled Northern Rock slumped again yesterday amid worries that the mortgage bank may not pay its interim dividend.

Also, a report that a hedge fund break-up could leave investors with almost nothing saw even more shareholders rushing for the exit.

Northern Rock, which has been engulfed in crisis since requiring support from the Bank of England earlier this month, refused to say whether its interim dividend will definitely be paid.

It had planned to treat investors to 14.2p per share, a rise of 30 per cent over last year's payout.

The Financial Times said the bank had taken legal advice about whether to pay the dividend, which would cost nearly #60 million, and had acknowledged it is not legally obliged to do so.

A spokesman for the bank said: "We confirmed on September 14 that the intention was to pay the dividend.

"We are well aware of our obligations and if there is anything new to announce on that then we would make that announcement."

The payment is due to be made on October 26.

The payout now represents more than seven per cent of the value of the shares, which by early afternoon yesterday had fallen by 8.3 per cent to 179p, valuing the bank at under #800 million.

At one stage they hit an new all-time low of 163p before recovering to close 20p adrift at 174.5p and are likely to remain volatile until greater clarity emerges on the bank's future, analysts said.

A weekend report that three hedge funds are considering a break-up of the bank also hurt the shares, as it would leave shareholders with virtually nothing.

Banks that had considered a takeover have been put off by the credit crunch that sparked Northern Rock's problems.

Any prospective buyer may need to see liquidity in wholesale money markets improve first.

"It depends on how markets evolve and how markets normalise," said Gordon Scott, a financial institutions specialist at Fitch Ratings.

"Whoever takes over Northern Rock, if indeed someone does take them over, still needs to get access to the markets so that will be critical to any solution."

Northern Rock's dividend payout is sensitive because the bank is estimated to have borrowed #3 billion through the Bank of England's "lender of last resort" facility, which is effectively underwritten by the taxpayer.

At the same time, investors have seen the value of their shares tumble more than 70 per cent since the BoE help was announced, which prompted the first run on the deposits of a major British bank for over 140 years.

Northern Rock unveiled the 30 per cent rise in its dividend payout when it posted first-half results on July 25, even though it had warned a month earlier that a funding squeeze was affecting its business.

The rise in the payout was seen as a step change, taking its payout ratio to 50 per cent from 40 per cent, as the introduction of Basel II liquidity rules would require it to hold less capital, the bank said.

Meanwhile yesterday it emerged that the crisis at Northern Rock has hit savers' confidence by highlighting the limits on the cash people would get back if a bank went under.

Six out of 10 people questioned in a survey said they thought the amount of money paid out by the Financial Services Compensation Scheme (FSCS) to consumers who lost savings

as a result of a bank or building society collapsing should be increased, financial website said.

At the moment the FSCS pays out only the first #2,000 people have lost, followed by 90 per cent of the next #33,000, meaning savers can only get back #31,700 of any money they lose.

Chancellor Alistair Darling has said he is considering moving to an American-style system where savers' money is separated out in the event of a bank collapse and paid out within days. Although a figure has not yet been decided upon, he told The Times that a guarantee for up to #100,000 was possible.

The scheme would be paid for by a levy on banks and other financial institutions.

The research carried out for also found that 44 per cent of people also no longer trust the Government, the Financial Services Authority or the Bank of England to protect their savings if there is another bank run similar to the one on Northern Rock.