Banks lead Europe shares up after U.S. and Japan surge

By Rebekah Curtis

LONDON (Reuters) - European shares surged 3 percent early on Wednesday, led by banks and heartened by major rallies in U.S. and Asian stocks as investors bet on a U.S. rate cut that could help shore up the battered economy.

At 9:35 a.m. the pan-European FTSEurofirst 300 index .FTEU3 was 3.3 percent higher at 861.55 points, rising for a second consecutive day after five days of losses and after hitting a high of 875.04 in early trade.

The index has shed about 43 percent so far this year as a snowballing financial crisis has hammered equities worldwide.

The European banks sector .SX7P added more than 5 percent. UBS (UBSN.VX) gained 8.9 percent, Santander (SAN.MC) rose 8.7 percent and Standard Chartered (STAN.L) added 12.5 percent.

BBVA (BBVA.MC) rose more than 8 percent after saying nine-month recurrent net profit rose 9.1 pct to 4.321 billion euros (3.4 billion pounds)from 3.962 billion, compared with 4.18 billion forecast in Reuters poll.

Wall Street marked its second-best day ever on Tuesday, with major U.S. stock indexes surging about 10 percent.

The U.S. Federal Reserve is set to announce its rate verdict at 6:15 p.m. British time. In a Reuters survey, primary dealers expected the Fed funds rate will be cut to 1 percent from 1.5 percent.

"The Fed doesn't have too many more rate cuts left at its disposal but there is still scope for them to ease further," said Darren Winder, an equity strategist at Cazenove.