European stocks up around midday; RBS plummets

By Blaise Robinson

PARIS (Reuters) - European stocks were higher on Tuesday after suffering record losses in the previous session, but banks fell again as the credit crisis escalated, prompting Iceland to take control of Landsbanki.

Royal Bank of Scotland plummeted 26 percent, Lloyds shed 6.7 percent and HBOS tumbled 14 percent, hit by talk that the British government was mulling a possible bank recapitalisation plan with the country's lenders. RBS said it did not make a request to government for capital.

An industry source told Reuters Britain and its banks will hold more urgent talks over a possible multi-billion pound injection into the sector over coming days.

At 1 p.m., the FTSEurofirst 300 index of top European shares was up 1.3 percent at 1,018.03 points. Stocks experienced their worst one-day percentage fall on record on Monday, tumbling to four-year closing lows as mounting fears over the global credit crisis prompted investors to dump stocks across the board.

"Shares of big banks are collapsing. It's just a complete loss of confidence, worries about what governments are going to do and what governments can do," said Alan Harris, investment manager at Charles Stanley.

"Europe is supposed to be acting with one voice but it seems to be chaotic at the moment," he said.

"You must not panic, that's the worst thing to do. You do not sell good quality shares at these prices ... This could be sort of a climactic selloff that very often leads to the bottom of the market, and we've been in a bear market for 15 months now, which is a reasonable length of time."

Deutsche Bank dropped 7.4 percent on talk the German lender may be looking to push through a capital increase.