Police were called in to control the crowds after text messages flashed across the city warning the bank was unstable as it held a large number of assets linked to the failed Wall Street bank and the troubled insurance giant.

But BEA and the city's financial authorities moved quickly to rebuff the claims, insisting the bank was in a solid financial position.

"It has come to the notice of The Bank of East Asia (BEA)... that malicious rumours have been circulated questioning the stability of the bank," the bank said in a statement.

"The management of BEA hereby states in the strongest possible terms that such rumours have no basis in fact. The management further confirms that the bank's financial position is sound and stable."

Hundreds gathered outside branches across the city and the bank extended opening hours for several hours to try and deal with the rush of customers.

"I hope it is just panic, but you never know. I am going to take my money out and put it in another bank," said public relations worker Ada Ho, outside a city centre branch. Ho said she read the rumours on the Internet.

At one branch they issued IOUs and told people to come back in the morning to claim their deposits, an AFP photographer said.

Up to 400 disgruntled savers, many of them elderly, had to be held back by police as they battled to get inside one branch of BEA in southern Hong Kong island before it closed, according to an AFP photographer at the scene.

The bank's deputy chief executive, Joseph Pang, told Dow Jones Newswires that while there have been slightly more bank withdrawals than usual, the situation was "manageable."

Pang said the bank first learned of the rumour on Monday, but didn't disclose it immediately because it wanted to avoid spreading panic.

The statement said BEA's outstanding exposure was 422.8 million Hong Kong dollars (54.2 million US) to Lehman's and 49.9 million dollars to AIG.

Its total consolidated assets stood at 396.6 billion Hong Kong dollars on June 30, with a capital adequacy ratio of 14.6 percent, well above the international required level, the statement added.

The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, insisted the banking system was "safe and sound."

"Local banks are well capitalised and highly liquid... The rumours of the financial instability of BEA are unfounded," it said in a statement.

Joseph Yam, HKMA's chief executive, said it would provide liquidity if BEA required it, but no request had been made. He said the police would investigate who started the rumour.

Shares in the bank dropped as much as 11.3 percent in afternoon trade on the Hong Kong Stock Exchange after falling 6.9 percent over the past two trading days.

However, after the bank's statement its shares rallied in late trade to close down 6.9 percent on the day.

The drama came just days after the company was forced to restate its earnings downwards by almost 12 percent, after it found that one of its workers had buried losses from an unauthorised trade.

The bank wrote-down its profits after it found the 93 million Hong Kong dollar trading loss, which it attributed to "an unauthorised manipulation of the valuation of certain equity derivatives held by the bank," the Financial Times reported.

The bank's chairman is Hong Kong tycoon David Li, a member of one of Hong Kong's most powerful families, which has been prominent for five generations in business and politics.

His grandfather founded the Bank of East Asia in 1918 and the lender boasts one of the biggest branch networks in mainland China among Hong Kong lenders.

Hong Kong investors reluctance to heed government assurances may be linked to the collapse of Bank of Credit and Commerce International in the early 1990s.

The government issued a statement at the time saying that the Hong Kong arm of the bank was "sound and viable" and encouraged investors to stop withdrawing cash.

But just days later they were forced to liquidate the bank, leaving many savers in the lurch.

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