LONDON/WASHINGTON, Oct 16 (Reuters) - Bitcoin rose suddenly on Monday, before giving up nearly all its gains, after asset manager BlackRock denied a crypto media report that U.S. regulators had approved its high-profile application for a crypto investment product.

Bitcoin, known for its volatility, was last trading up 3.82% at $28,211, after earlier rising as much as 10% to $29,900, its highest since August.

Crypto news outlet Coin Telegraph had earlier reported that the U.S. Securities and Exchange Commission had approved an application by major asset manager BlackRock for a spot bitcoin exchange-traded fund, before later retracting the story.

But bitcoin fell sharply after a Fox Business reporter said on the social media platform X that BlackRock denied the report.

BlackRock later confirmed to Reuters that "the iShares Bitcoin ETP application is still under review by the SEC." Sources close to the SEC also confirmed that the application is still pending.

"Crypto markets have just shown how sensitive they are to any potential good news, with their premature rally today on rumors of the approval of a spot bitcoin ETF," said Ben Laidler, global markets strategist at eToro.

In a post on X, Coin Telegraph apologized for its earlier post, which it said "led to the dissemination of inaccurate information."

"An internal investigation is currently underway. We are committed to transparency and will share the findings of the investigation with the public once it is concluded within 3 hours," Coin Telegraph said. It also deleted its initial post.

Crypto markets have been awaiting news on several pending spot bitcoin ETF applications, which, if approved, are widely expected to drive investment in the sector. The SEC has denied all spot bitcoin ETF applications on the grounds applicants have not shown they can protect investors from market manipulation.

"The move does show how monomaniacally obsessed the bitcoin market is with the coming spot ETFs," said Joseph Edwards, head of research at London crypto firm Enigma Securities.

While the news about the SEC approving a spot bitcoin ETF on Monday was a "false alarm," it was also a "good dress rehearsal" for when the regulator delivers a final decision on the applications, said Lucas Kiely, chief investment officer at Yield App.

"Headline risk is creating a lot of volatility ahead of this SEC announcement, with everyone trying to get ahead of it as the market will move markedly either way depending on the decision," he said.

Reuters was first to report on Oct. 13 that the SEC would not appeal a recent court ruling that found it was wrong to reject an application from Grayscale Investments to create a spot bitcoin ETF, in a case that has been closely watched by the cryptocurrency industry.

The District of Columbia Court of Appeals in Washington is now expected to issue a mandate within the next week specifying how its decision in the case should be executed, which will likely include instructing the SEC to revisit Grayscale's application.

Reporting by Tom Wilson and Elizabeth Howcroft in London and Hannah Lang in Washington; additonal reporting by Suzanne McGee; Editing by Tommy Reggiori Wilkes, Sharon Singleton and Josie Kao

Our Standards: The Thomson Reuters Trust Principles.