Monaco-run SRM Global's interest has really boosted the bank's shares, climbing as much as 43.65 per cent in value.
News of SRM Global's interest sent the bank's shares up as much as 43.65%.
It comes a day after the Treasury agreed to protect new savings deposited at Northern Rock, as well as accounts opened before 19 September.
It has also been reported that Citigroup could offer Northern Rock a £10bn lifeline loan.
Former UBS trader Jon Wood, who runs SRM from Monaco, told Bloomberg in an interview he saw value in Northern Rock and would watch to see how events would unfold.
Shares in Northern Rock jumped 67p, or 32.41%, to 272.5 pence in early afternoon trade. This added to the gains made on Tuesday after the government widened the safety net for the bank's customers.
Brave move?
The hedge fund is not the first to pick up shares in the bank which is struggling for survival after it was forced to go to the Bank of England for emergency financing at the beginning of September.
RAB Capital took a stake in the bank of 6.05%, worth almost £50m, for its special situations fund, last month.
It was then seen as a brave move in the investment community, particularly as most rival hedge funds were betting heavily that Northern Rock faced heavy funding problems and its shares were going to plunge.
The bank has maintained that its business is solvent but faces short-term problems finding the funds to cover its day-to-day operations.
This is because it relies more heavily than other UK mortgage lenders on borrowing cash from other banks to run its business.
This has proved to be a deep problem since the credit markets seized up over the summer in response to panic over which banks had investments in souring US sub-prime home loans.
Speculation has been rife over whether the bank will be bought and kept going in its current form, or whether private equity firms will move in and break up the business to sell off its most profitable part, its home loan book.
