Global financial markets are braced for more turmoil after Lehman Brothers, one of the world's largest investment banks, announced plans in the US to file for bankruptcy protection.

The move by Lehman Brothers Holdings International follows the collapse of rescue talks after the bank lost billions of dollars on the US mortgage markets.

A petition under Chapter 11 of the US Bankruptcy Code allows companies to reorganise their contractual and debt obligations under the supervision of a bankruptcy court.

The firm said it is still trying to sell its broker-dealer operations and investment management division. Another subsidiary, Lehman Brothers Asset Management, is not subject to the petition.

Barclays in the UK had been the front-runner to bail out the ailing firm, but it reportedly walked away after failing to obtain guarantees over Lehman's financial commitments.

Barclays said: "We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders."

In the UK, Lehman employs staff at its regional headquarters in Canary Wharf, London, as well as its office in High Wycombe, Buckinghamshire. Globally the group has around 25,000 staff.

As Lehman edged towards collapse, US and foreign banks announced plans to put in place a $70bn (£39 billion) lifeboat credit fund to help shore up financial markets.

They have agreed to create a "collateralised borrowing facility" of $70bn, with each bank contributing $7bn (£3.9 billion) to help ease access to credit.

In a separate move to help shore up the financial markets, Bank of America has announced a $50bn (£28bn) deal to buy Wall Street giant Merrill Lynch, which has also been stung by the credit crunch.

Bank of America's acquisition of Merrill Lynch follows negotiations between the firms and the US Government, which was eager to minimise the damage from the Lehman fallout.

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