The crisis at Rover took a dramatic turn today when the venture capital firm expected to buy the car giant announced that negotiations had ended, writes David Duffy.

Alchemy Partners said it had ceased negotiations with German owners BMW because it was unable to agree certain contractual matters.

A brief statement said some of the issues had only arisen yesterday.

The announcement strengthens the hand of a rival bid by a consortium led by former Rover executive John Towers. The statement, headed Alchemy and BMW Terminate Rover Talks, reads: Alchemy Partners and BMW have ceased negotiations as they were unable to agree upon certain contractual matters, some of which arose yesterday.

Alchemy Partners thanks BMW for its constructive and cordial negotiations and wishes Rover and its employees well in the future.

BMW had been expected to agree the sale of Rover to Alchemy in the next few days after insisting that the Towers team had not provided the necessary financial backing.

The effect on the Cowley plant, where production of the Rover 75 has been suspended for a month, was not immediately clear.

BMW has insisted it wants to keep the plant, which has been the focus of 700m investment in recent years and develop it into a major UK production centre, building the new Mini, the Rover 75 for Alchemy and eventually developing a new range of small BMW cars. But it is thought the Phoenix consortium's bid wanted to take over the Cowley plant as well as Longbridge.

Under the deal with Alchemy, Longbridge would have been sold off to make sports cars under the MG brand with thousands of job losses.