Shareholders of the Royal Bank of Scotland have backed the company's takeover bid for the National Westminster.

At an extraordinary general meeting in Edinburgh they were told that the deal showed that the Royal Bank had vision and ambition.

The vote is another step in the bidding war which involves the Royal Bank of Scotland and its rival the Bank of Scotland.

Deputy chief executive Fred Goodwin refused to rule out the option of diluting shareholder equity further should it be necessary for the bank to increase its unsolicited offer.

He said: "We want to steer clear of making categoric or absolute statements about what we may or may not do about revising our offer, but we're not minded to dilute our shareholders any further.

The Royal signalled an interest after initial moves to buy were made by the Bank of Scotland.

Both Scottish groups have until the end of January to raise their offers and NatWest shareholders will have to agree to - or refuse - one of the bids by the middle of February.

Insurance move questioned

The shareholders' meeting comes in the same week the Bank of Scotland went on the offensive and questioned the Royal Bank's links with its new insurance partner CGU.

The insurers have just invested £50m in the past few days to help support the Royal's share price.

The Royal said it had fully disclosed its plans for both CGU and its biggest shareholder, the Spanish bank BSCH, to buy up more shares in support of its takeover plans.

The Royal started the takeover clock ticking again when it launched its counter bid in mid-December.

As the mud slinging across Edinburgh continues, there is now a growing sentiment in the city that a third option is becoming more viable - that of NatWest retaining its independence.

Royal favourite to win

At the end of December the Trade and Industry Secretary Stephen Byers decided not to refer the Royal's bid to the Competition Commission.

City analysts believe Royal Bank of Scotland is the favourite to win the takeover battle, but its lead has narrowed in recent weeks, according to a Reuters poll.

The survey found the average probability of the Royal Bank of Scotland winning was estimated at 50.3%, down from an average 60-70% in a survey of fund managers and analysts three weeks ago, just before RBS couched its offer in "friendlier" terms.

The Bank of Scotland's chances of winning were an average 28.4%, down from 30-40%.

NatWest's average chances were seen rising to 18.2% from 10% or lower three weeks ago.