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Shares in Southern Cross Healthcare, the UK's biggest care homes operator, have plunged 60% on news that financial problems are mounting.

The firm has appointed KPMG to look at restructuring options after cuts in local authority spending worsened its trading outlook.

Southern provides care to more than 31,000 people, with the bulk of funding coming from the NHS and councils.

The company said that budget cuts meant its rent burden was "unsustainable".

Southern said it was in discussions with landlords about a restructuring, and also warned it was in danger of defaulting on its debts.

"The company's lenders are aware of an impending banking covenant breach but remain fully supportive of the actions which the company is taking to address its problems," said Southern in a statement.

The company also confirmed that it was no longer in discussions with potential buyers.

"The board considers that none of these proposals are likely to result in a meaningful offer being made in the foreseeable future and has decided not to pursue them further," it said.

Shares in Southern, which reached 606 pence in 2007, were trading at 6.3p at midday.