Germany adopts 500 billion euro bank rescue package

By Matthias Sobolewski and Paul Carrel

BERLIN (Reuters) - Chancellor Angela Merkel's cabinet approved a banking rescue package worth up to 500 billion euros (393 billion pounds) on Monday, seeking to restore confidence and order to Germany's battered financial sector.

The package comprised up to 400 billion euros in bank guarantees and as much as 100 billion euros in state funds -- sums that together almost equal Germany's annual tax take.

"Today we have established a first building block for new financial market conditions," Merkel told a news conference.

"We have one goal -- (the plan) should help to create new confidence, between banks, in the economy and among citizens."

Earlier the euro rose against the dollar on news the cabinet had approved the plan, which Merkel said should come into effect on Friday after parliament has passed it.

Germany's DAX leading share index also rose strongly on Monday after falling last week to a three-year low, and closed up 12 percent.

The country's state-backed, cooperative and commercial banks all welcomed the move, saying it would spur interbank lending and help stabilise financial markets. The top two lenders, Deutsche Bank and Commerzbank predicted it would help restore confidence in the banking system.

But banks were reluctant to say whether they would make use of the funds.