HBOS is the biggest mortgage lender in the UK
Shares in troubled bank HBOS have rallied amid increased market confidence that a takeover by Lloyds TSB would go ahead as planned.
There has been concern that recent declines in banking shares meant the deal might be in doubt.
HBOS shares rose by 21% on Wednesday but are still worth less than Lloyds offered for the firm two weeks ago.
BBC business editor Robert Peston has said the deal will go ahead. However he says the terms could be changed.
The government is in close contact with those involved in the takeover a spokesman for the Prime Minister said.
He said: "Lloyds themselves are saying that they are pressing ahead with the takeover and the Prime Minister, as he said yesterday, is confident the takeover will go ahead."
Under the terms of the deal, HBOS investors were offered 0.83 Lloyds TSB shares for every HBOS share they own.
Based on Lloyds TSB's closing share price the day before the deal was formally announced, this valued HBOS at £12.2bn, or 232 pence per share.
But since then banking shares have had a rollercoaster time, and HBOS shares have fallen in value.
Based on Tuesday's closing price, Lloyds offer now values HBOS at 188p a share, whereas HBOS shares closed at 122.5p. This prompted worries that the terms of the deal might have to be revised.
However as the deal had been backed by the government and the Prime Minister had staked his reputation on it going ahead, the deal will take place, our business editor said.
The Prime Minister's spokesperson reiterated that Mr Brown said that after having spoken to those concerned, he was confident the deal would be sealed.
The positive mood was echoed by Sir Brian Pitman, former chairman of the Lloyds TSB Group.
In a BBC interview Sir Brian said the deal was "in very capable hands".
"It's important that the deal goes through and I'm confident it will go through," he said.
An HBOS spokesperson said on Wednesday that it was "full steam ahead" and that it was "the right deal for HBOS shareholders".
Lloyds had also said the deal was on track and should be completed by the end of 2008.
"This is a fantastic opportunity to create one of the UK's leading financial services groups," a spokesman for Lloyds said.
HBOS is just one of several banks to require external help since the start of the credit crunch.
The firm entered into the agreement with Lloyds when its share price fell sharply during a period of huge financial upheaval and consolidation in the banking sector.
Last year Northern Rock was nationalised and only this week the government confirmed that it would also take over mortgage lender Bradford & Bingley.
"We shall wind up, I think, with five or six very, very big, very safe banks [in the UK] at the end of this exercise, it's a process of clearing out the stable," said Sir Brian.
"It happens every time and it likely to happen again," he added.
A deal between HBOS and Lloyds would create a business with almost a third of the UK's mortgage market with some 3,000 branches.