Shares in Premier Foods, the maker of Hovis bread and Mr Kipling cakes, fell almost a third on concerns it was in financial difficulty.
There had been speculation that rising raw material prices meant it would have to issue more shares to pay its debts.
But Britain's biggest food maker said in a statement it was not contemplating a rights issue to raise funds.
The price of wheat and dairy products rose significantly in 2007, pushing up Premier Foods' costs.
Its shares fell from 120p to 85.25p on the London Stock Exchange this morning, their lowest level since the company floated in 2004. Shares recovered during the aftenoon to close down 11.75p at 108.75p.
The shares were also hit by a negative broker comment.
Analysts at brokers Shore Capital said there would be stiff competition from rivals Warburton's and Allied Bakeries as well as pressure from supermarkets to keep prices down.
"Shore Capital believes that 2008 will be a tougher year for the food industry with Tesco and Asda seeking to protect their sales base from a revitalised Morrisons," the broker said.
Premier Foods has debts of £1.7bn after buying Mr Kipling and the UK arm of Campbell's Soup, makers of Oxo and Homepride, in the past two years.