European shares bounce after Fed liquidity move

By Amanda Cooper

LONDON (Reuters) - European shares rose by more than 2 percent by midday on Tuesday after the Federal Reserve and other major central banks unveiled measures to inject liquidity into strained money markets, which pushed up financials.

Banks replaced utility and energy stocks as the best performers on the broader market after the Fed said it would lend up to $200 billion (100 billion pounds) in Treasury securities to primary dealers and would act in concert with the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank to calm the money markets.

HBSC (HSBA.L) shares were the top positive weight on the broader market, rising by nearly 5 percent, while Banco Santander (SAN.MC) was up 4.5 percent and Royal Bank of Scotland (RBS.L) gained nearly 7 percent.

The DJStoxx index of European banks .SX7P was up 4.5 percent, set for its largest one-day rally since January 24.

The FTSEurofirst 300 index .FTEU3 of top European shares was up 2.3 percent at 1,283.86 points by 1:07 p.m. Advancing issues outnumbered decliners by nearly 12 to one, compared with a ratio of about four to one earlier in the day.

"The Fed appears to be working or stepping beyond just the interest rate measures which clearly some people were starting to believe just weren't working," said Philip Isherwood, a strategist at Dresdner Kleinwort.

"Predictably equities have rallied on the back of it and bond yields have backed up. But I think we'd still expect the Fed to do more next week," he said.

The Fed has cut U.S. interest rates by 125 basis points to 3 percent so far this year to shore up the broader economy against slowing consumer spending and a deteriorating employment backdrop triggered by the slump in the housing market.