Germany agrees bank rescue

By Gernot Heller

BERLIN (Reuters) - Germany acted to stem turmoil in its financial sector on Sunday, thrashing out a new rescue for imperilled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.

After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro (27 billion pound) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened on Monday.

Under an accord, struck just after 11 p.m. (10 p.m. British time), the financial sector agreed to provide an extra 15 billion euros ($20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.

"With this commonly forged solution, (Hypo Real Estate) will be stabilised and thereby the German financial marketplace strengthened in difficult times," the ministry said.

Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.

"We say to savers that their deposits are safe," Chancellor Angela Merkel told a news conference in Berlin.

The move was a surprise because, behind the scenes, German officials had been highly critical of Ireland when it announced a similar move last week.

The change in approach reflected the fast-moving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.