Updated from 12:30 p.m. EDT

Beazer Homes ( BZH) shares plunged Wednesday amid market buzz that the homebuilder would be filing for bankruptcy -- a rumor the company categorized as "scurrilous and unfounded."

The stock had tumbled as much as 42% midmorning but recovered ground and recently was down $2.73, or 19.5%, to $11.25.

Several market sources say they heard the rumor of a crisis at Beazer, but they had no information to verify it.

"We have become aware of rumors circulating in the market about Beazer Homes' liquidity and a prospective bankruptcy filing," Beazer said in a statement. "We do not know where these scurrilous and unfounded rumors started. For an accurate representation of the company's financial position, including the company's liquidity and near-term prospects, we encourage investors to refer to the company's recently released third quarter earnings release and the script of our conference call with analysts and investors."

Like most homebuilders, Beazer has recorded steep losses and declining home orders amid the widespread housing downturn. Last week, the company said reported a fiscal third-quarter loss of $123 million, or $3.20 a share, compared with a profit of $102.6 million, or $2.60 a share, a year earlier.

"I don't see how there could be a liquidity crisis there," says Fitch Ratings credit analyst Robert Curran. "Unless there was something out of the blue, but what out of the blue would prompt a bankruptcy filing?"

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