Berlin officials said late on Monday that the federal government would instruct its KfW bank to extend a loan of 25 million euros ($35 million) to Quelle, one of Europe's biggest mail-order companies. This would match a further 25 million euro loan granted by the two German states of Saxony and Bavaria.

The funds would be used to finance Quelle's day-to-day operations during insolvency until December 31. Quelle, the keystone of parent company Arcandor's web of mail-order and online vendors in 28 nations, declared insolvency on June 9.

Quelle is a highly symbolic German company, especially among the older generation, and has a mail-order catalogue featuring everything from washing machines to underwear.

Together with the department store chain Karstadt, it is one of the most prominent casualties of the bankruptcy of its parent company Arcandor.

Bailout critics

Henning Koopmann, the boss of Quelle's competitor Neckermann, said any state rescue for his rival would be "unfair."

"A state-backed loan might save 8,000 jobs at Quelle for now, but it would also endanger the 72,000 jobs at other mail-order companies in Germany," he said.

Bavaria's opposition Social Democrats also criticized the regional government, accusing it of conducting a cynical drama on the backs of Quelle employees.

On Saturday, the daily Sueddeutsche Zeitung reported that Quelle transferred all of its cash to its parent Arcandor, only hours before the company declared insolvency in June.

An Arcandor spokesperson later confirmed the report, but said the transfers were automated and not motivated by the insolvency.

Since then, Quelle has been surviving off the kindness of its suppliers, who have suspended their invoices.

dfm/nk/nw/dpa/AFP

Editor: Mark Hallam