Key German bank rescued as Italy revives bailout talks

By Gernot Heller and Kevin Krolicki

BERLIN/WASHINGTON (Reuters) - Germany offered a blanket bank deposit guarantee on Sunday in a bid to contain the spreading credit crisis as officials clinched deals to rescue Germany's Hypo Real Estate and recapitalize two other European banks.

From Iceland to Italy, officials scrambled to contain the fallout from the deepest financial crisis since the 1930s amid a continued debate about whether a fragmented European response could keep pace with a fear-driven market.

In a sign that the credit crunch is being felt in Asia, South Korea's finance minister said Korean banks were having trouble securing funds in foreign currencies and said the government would offer loans from its reserves.

On Saturday, leaders of Europe's four biggest economies -- Germany, France, Britain and Italy -- decided against a coordinated bank bailout, while vowing to stabilise markets.

But in what would mark a stunning reversal after just a day, Italian Prime Minister Silvio Berlusconi said on Sunday that Italy would revive the idea of a common bank bailout fund at a meeting of finance ministers on Monday.

Germany shot back that it remained opposed to any such shared bank rescue fund like the $700 billion (395 million pound) bailout approved last week by the United States.

A French official said there was no fund proposal up for discussion.

Meanwhile, Germany said it would guarantee deposits in German banks to protect savers. Austria and Denmark quickly followed suit with the same kind of blanket guarantee first offered by Ireland last week.