Market players said the state money and additional funds would help bridge a financing gap at Holzmann but that the future of the construction group, which last week discovered 2.4 billion marks of potential losses, was far from certain. "Nothing is secure. This will help for the first weeks, the first months," said Eckhard Frahm, senior salesman at Merck Finck & Co in Munich. "But there are still a lot of risks."

Schroeder's intervention was a show of political force that should boost his election fortunes after a seriesof setbacks in state polls amid infighting in his uncomfortable Red-Green coalition government and stubbornly high unemployment. Up to 70,000 jobs had been at stake at Holzmann and its suppliers.

But the rescue raises doubts about Germany's commitment to the rules of the free market. Many critics said Holzmann, wracked by years of mismanagement and a fall in the real estate market, had deserved to fail.

Others said the episode was a wake up call for the construction industry in Germany to become more transparent.

"The industry has got to learn that transparency is critical both for managers and for shareholders," said Karl Debenham, construction analyst at Merrill Lynch in London.

Holzmann said it was beginning a restructuring that would include a reorganisation of its capital and that it would give further details at news conferences later on Thursday.

Capital restructuring measures would be decided on at an extraordinary shareholders meeting on December 30.

The Frankfurt administrative courtconfirmed that Holzmannhad withdrawn a filing for insolvency registered on Tuesday.

Holzmann's initial proposal, broadly backed by banks on Wednesday night, envisages a capital write down and subsequent capital increase as well as fresh credit and a debt-for-equity swap.

Schroeder on Wednesday offered 150 million marks through state reconstruction agency Kreditanstalt fuer Wiederaufbau to provide Holzmann with fresh equity and also pledged to provide a 100 million-mark guarantee.But some analysts said that the increased supply of Holzmannstock would weigh on its share price.

"The key point is: What is the equity of Holzmann going tobe worth after this? And the answer is probably not very much," said one analyst, who asked not to be named. The stock will be massively diluted and the majority of Holzmann will be held by uncommitted banks who will be looking to sell, he said.

Schroeder said he expected the state's contribution to Holzmann's rescue to conform to European Union regulations. The EuropeanCommission said on Thursday it had asked Germany for details of the rescue package, adding that earlier reports it had already approved a plan were incorrect.

The German leader's deal came after Holzmann's 20 corecreditor banks failed to agree a bail-out in three rounds of negotiations over the past week.

Holzmann's creditors, led by Deutsche Bank AG, bore the brunt of public fury over the near-collapse of the 150-year-old builder that played a prominent role in the reconstruction of Germany after the Second World War. Their agreement to a rescue is likely to go some way torestoring their public image.