Hopes that heavily indebted British clothing retailer Peacocks can avoid collapsing into administration faded on Monday after major lender Royal Bank of Scotland withdrew from talks about on a proposed debt-for-equity swap.

Peacocks is saddled with 240 million pounds of debt, and two sources with knowledge of the situation said an administration of the retailer, possibly within days, was the most likely scenario.

A spokeswoman for Peacocks, which trades from 611 Peacocks stores and 394 Bonmarche shops in the UK, employing about 10,000 people, said discussions among stakeholders regarding the restructuring of the debt were continuing.

She declined to comment on media reports the firm had lined up KPMG to carry out an administration, an insolvency process. KPMG declined to comment.

State-controlled bank RBS withdrew from talks to turn some of the company's debts into equity holdings in the company after taking account of the British retail sector's poor newsflow since Christmas, including last week's profit warning from Tesco , the UK's biggest stores group.

Each company restructure is judged on its own merits, but clearly the difficult conditions that retailers face is an important factor. We have been and continue to be supportive of the company, RBS said in a statement.

New investors willing to inject sufficient capital could not be found. If further funds are required, then this is an issue for shareholders and for approval by a majority of the company's lenders.

Peacocks' other main lender is Barclays . At every stage Barclays has been willing to support the management in the restructuring of the business, it said.

Meanwhile, another source familiar with the situation said private equity firm Sun European Partners was in exclusive talks with Peacocks to buy the Bonmarche chain in a deal that could involve a pre-pack administration of Bonmarche.

Sun European Partners declined to comment.

Peacocks shareholders include U.S. investment bank Goldman Sachs and hedge funds Och Ziff and Perry Capital, while management, led by Chief Executive Richard Kirk, have a significant minority holding.

The retailer made earnings before interest, tax, depreciation and amortisation (EBITDA) of 66.5 million pounds in the year through March 2011.

With the retail outlook bleak, hedge funds hunting profits from falling share prices are circling many of Britain's biggest store groups, and fears are growing of a wave of UK retail failures equivalent to that which saw Woolworths go under in 2008-9.

A handful of small privately owned retail players went into administration over the Christmas holiday, including toy store Hawkins Bazaar and fashion chain D2 Jeans, after quarterly rent fell due on December 25, while last week outdoor goods group Blacks Leisure was bought by JD Sports in a pre-pack administration deal.

(Reporting by James Davey and Sudip Kar-Gupta; additional reporting by Isabel Witt; Editing by Andrew Callus)