Euro Shares Leap as Governments Bail Out Banks

European shares were up 6 percent by midday on Monday, led by financials as governments and central banks worldwide took major steps to rescue the global banking system after the brutal fall in world stocks last week.

The FTSEurofirst 300 index of leading European shares was up 6 percent at 902.06 points, tracking gains in Asia and after its 22-percent fall last week.

After an emergency meeting in Paris over the weekend European governments agreed to provide capital for banks caught short of funds because of frozen money markets and to insure or buy into new debt issues.

The FTSEurofirst, which hit a five-year low last week, has lost more than 40 percent so far this year in the jaws of a credit crisis that has sparked major losses at the region's banks, frozen interbank lending and slowed the economy.

UBS jumped 15 percent, while Credit Agricole, Banco Santander and HSBC all soared between 6.2 and 8 percent.

Credit Suisse rose 12 percent after Merrill Lynch upgraded it to "neutral" from "underperform", saying last week's 40-percent fall was overdone. Julius Baer rose 12 percent after a Deutsche Bank upgrade.

"The hope in the markets is that political leaders have finally grasped the nettle with substantial and coherent rescue plans now being formulated and rolled into place," said Keith Bowman, Equity Analyst at Hargreaves Lansdown Stockbrokers in London.

"For now, the hope is that today will mark a watershed, with vast measures of government reassurance finally rekindling some confidence in the shattered banking sector," Bowman said.

HBOS, RBS Tumble

But shares in HBOS tumbled 25 percent and Royal Bank of Scotland lost 3.8 percent, underperforming European rivals after the UK government waded in with $64 billion of taxpayers' cash to bail out RBS, HBOS and Lloyds TSB.

Royal Bank of Scotland earlier slumped about 30 percent as traders cited poor growth prospects and no dividend from the bank for five years.

HBOS shares plunged after Lloyds said it had renegotiated its agreed takeover of the mortgage lender, as both banks unveiled plans to accept UK government money to bolster their finance, traders said. Lloyds fell 4.7 percent.

HBOS investors will now receive 0.605 Lloyds shares for every HBOS share they hold, revised from previous 0.833 Lloyds shares per HBOS share.

"Once the dust settles there's going to be a huge introspection into how the banks are run," said Edward Menashy, a strategist at Charles Stanley in London.

Shares in Societe Generale shed 10 percent as traders cited talk of government intervention and losses on structured products at the bank. SocGen had no immediate comment.

In Paris, a report by Dow Jones Newswires said the French government would create a 40 billion euro ($55 billion) fund to take stakes in banks. The French presidential office declined to comment on the report.

A German financial rescue plan includes a fund to provide up to 400 billion euros in guarantees for banks, according to a draft bill seen by Reuters on Monday.

The world's top central banks also announced on Monday further measures to improve liquidity in short-term U.S. dollar funding markets.

European central banks said they would lend out as much U.S. dollar liquidity as commercial banks needed in a further joint bid to resolve money market tensions.

In a joint announcement with the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would meet all bids from commercial banks at a fixed interest rate.

The interbank cost of borrowing three-month sterling and euro funds eased on Monday.

Oil shares surged as crude oil prices added 4.4 percent after sliding 10 percent on Friday.

Total, ENI, BP and Royal Dutch Shell gained between 6.7 and 8.4 percent.

Mining shares also rebounded, as gold and copper prices regained some lost ground.

Kazakhmys, Xstrata, Rio and Anglo American added between 9 and 13 percent.

Dutch company Philips Electronics, a standout loser, fell 6 percent after the company said it posted a 71 percent fall in third-quarter core profit as a charge for asbestos claims and restructuring costs impacted the group result.

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