Royal Bank of Scotland last night gained an edge over its rival bidder in the four-month battle to buy National Westminster Bank as it received the backing of two of the biggest NatWest shareholders.

Merrill Lynch Mercury, NatWest's second-largest shareholder with 4.65 per cent, and Schroders, NatWest's third-largest shareholder with 3.3 per cent, are to tender their shares to RBS next week.

The decisions ended a day of fluctuating fortunes for RBS and Bank of Scotland, its rival. BoS now stands little chance of gaining the 51 per cent backing it needs to win outright.

But RBS, though claiming 21 per cent already, still has some way to go to victory, given that, typically, 20 per cent or more of shares do not vote at all in hostile bids.

NatWest has so far failed to win public support from any large shareholder. It could escape if neither Scottish bank reaches 51 per cent, but now has little hope of winning a vote of confidence from its shareholders, even though Prudential, its biggest shareholder with a 4.76 per cent stake, has yet to declare a preference ahead of next week's deadline.

Mercury's and Schroders' decisions leave RBS in a commanding position after beginning the day on a low when BoS looked to be gaining the upper hand in the battle for control.

Shares in all three banks swung wildly yesterday, with RBS leaping in the morning as arbitrageurs began to think BoS was emerging as top dog. It followed the decision by Phillips & Drew, the seventh largest NatWest shareholder, to declare for BoS.

But RBS then announced it had won the backing of investors holding 12.88 per cent of NatWest's shares, enough to make it, at the least, very difficult for BoS to win an outright majority.