Morgan Stanley topped the list of major financial firms scrambling to find a buyer, while central banks rushed in $180 billion of extra liquidity to bring some calm to panicked stock and money markets. A source familiar with the matter said Morgan Stanley was discussing a deal with US regional banking powerhouse Wachovia Corp, and CNBC said the talks were advanced. HSBC Holdings and China's CITIC Group were also eyeing Wall Street's second-largest investment bank, CNBC reported. Morgan Stanley and larger rival Goldman Sachs Group Inc, the largest surviving independent Wall Street investment bank, are facing concern that the credit crunch could constrict the short-term funding they've traditionally relied on. The deposit base of a commercial bank could be a more stable alternative. Morgan Stanley shares were down 10 percent in early trading, indicating that the cost of insuring it against default had fallen. “Morgan Stanley is in merger talks with Wachovia, a move that would make more sense if Morgan were seeking synergies rather than seeking safety,” Christopher Low, chief economist at FTN Financial in New York, said in a research note. “Wachovia, after all, has huge option ARM exposure through Golden West, and option ARMS are shaping up as this year's subprimes.” Wachovia shares rose 14 percent, a top gainer as US stock markets rebounded in early trade, with the Dow Jones industrial average gaining 152 points. Following the near collapse and bailout of insurance giant American International Group Inc, Kraft Foods Inc replaced AIG in the index. British bank Lloyds TSB took advantage of the market turmoil to achieve a long-held ambition by scooping up the country's biggest mortgage lender, HBOS, in a $22 billion all-share deal. HBOS shares, which had slumped due to fears about its funding, soared 40 percent, and the UK government promised to rewrite competition laws to let the deal with Lloyds TSB go through. As Morgan Stanley cast around for a lifeline, the Government of Singapore Investment Corp (GIC) said it would consider all possibilities, including taking a stake if approached. Morgan Stanley officials in New York did not immediately return phone calls seeking comment. A spokeswoman at HSBC, which this week became the world's biggest bank by market value, also declined to comment, but a source told Reuters the bank wasn't interested in Morgan Stanley. A senior executive at CITIC Group's CITIC Securities arm said his firm was not in talks about investing in Morgan Stanley.