FTSE ends up 3 pct on U.S. rate cut

By Dominic Lau

LONDON (Reuters) - The top share index rebounded 2.9 percent on Tuesday after a hefty rate cut by the U.S. Federal Reserve propelled heavyweight financial stocks higher.

The FTSE 100 closed up 161.9 points at 5,740.1 in a volatile session, having fallen as much as 4.3 percent earlier in the day. Volumes were at their highest level since October 2007.

The blue chip index tumbled 5.5 percent on Monday, its largest daily loss since September 11, 2001, wiping nearly 77 billion pounds off the value of the index's constituent stocks. The FTSE 100 has lost 11 percent so far this year on concerns over the health of the U.S. economy.

The FTSEurofirst 300 index of top European companies also finished the day higher.

"At a time when asset prices are declining, a big cut in interest rates may not save the day. I honestly couldn't tell you at this point in time whether a recession would be avoided or not," said Edward Menashy, an economist at Charles Stanley.

"My suspicion has been that the economy was actually stronger than what most people had been predicting. We were on track to avoid a recession anyway."

Rate-sensitive banks, which have been hammered by global credit market turmoil in recent months, were the biggest winning sectors on the FTSE 100, contributing 57 points to the index.

Barclays, Royal Bank of Scotland, HSBC, HBOS and Lloyds TSB advanced between 3.9 and 9.2 percent.