The German government offered to buy property lender Hypo Real Estate Holding AG, moving closer to the country's first bank nationalisation since the 1930s.

The government's bank rescue fund Soffin offered €1.39 ($1.84) per share of the commercial property lender, above the stock's closing level in Frankfurt Wednesday of €1.20. It did not give a total value for the offer.

Hypo Real Estate gained 16 per cent to €1.39 in Frankfurt trading by 9:06 a.m. local time. The stock has declined 55 per cent this year, valuing the lender at €319 million.

The government moved last month to take an initial 8.7 per cent stake in Hypo Real Estate, buying new shares in the Munich-based company for €60 million. The bank said then that it was "a prerequisite for the intended recapitalization of Hypo Real Estate" that the government ''gains full control."

''With its public offer and the chosen offer premium Soffin underlines that it wishes to stabilise the financial market using a market-oriented approach if possible and by adhering to existing market practice,'' said Hannes Rehm, chairman of the fund.

A new law signed this week by President Horst Koehler would allow the government to expropriate shareholders if voluntary efforts to secure stock fail. It has until 30 June to do so. So far the government has provided the bank with loan guarantees of about €87 billion.

US private equity firms JC Flowers and Grove International Partners currently own 21.7 per cent of Hypo. JC Flowers has indicated it wants to remain a shareholder. Last week, it said it "remains open to constructive talks" with the German government. But it added that it "reserves the right to pursue all other options, including legal recourse, to safeguard the interests of its investors".

Hypo Real Estate has become the most prominent German victim of the financial crisis. It ran into trouble last September after its Dublin-based unit Depfa Bank PLC failed to find short-term funding amid the widening credit crunch.

Since then, the government has shored it up with loan guarantees covering some euro87 billion. Officials have argued that the government needs to be able to exert direct control after intervening repeatedly with guarantees.

The signing of the nationalisation bill into law removes the last hurdle in the government takeover of the ailing bank Hypo Real Estate.

The Angela Merkel government has moved to take control Hypo Real Estate (HRE) with an offer worth about €290 million (£260 million), the first nationalisation of a bank in postwar Germany.

The government already owns 8.7 per cent stake in the commercial property lender -  the biggest German casualty of the global financial crisis.

The government said its offer "provides an opportunity for Hypo  shareholders a price some 10 per cent above the statutory minimum of €1.26 a share.

The news came as it emerged that Germany may create a "bad bank" to bring toxic assets under the wing of the government and get banks lending again.

Flowers, which bought the stake last June for €22.50 a share, said it would study the offer but indicated that it would prefer to remain a shareholder.