European shares rise 10% on bank rescue euphoria

European shares rose 10 per cent yesterday - their biggest one-day percentage advance on record - as investors cheered action taken by governments and central banks to revive credit markets and bail out banks.

The FTSEurofirst 300 index of top European shares closed 10.1 per cent higher at 937.41 points, more than erasing Friday's 7.6 per cent slide to a five-year low close.

Benchmark US equity indexes were about six per cent higher as Europe's stock markets closed.

Governments in London, Berlin, Paris, Rome and elsewhere unveiled rescue packages worth hundreds of billions of dollars designed to counter the global financial crisis which has seen credit markets go into deep-freeze, threatening to exacerbate a looming global recession.

The world's top central banks also announced further steps to improve liquidity in short-term US dollar funding markets.

"The latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses that have prevailed in commercial paper and interbank markets," Goldman Sachs said in a note.

"Those stresses have been responsible for the most immediate financial risk issues and for much of the sharp tightening in financial conditions that we have seen in the last few weeks," it said.

Financials led the advance, with CS Group rising 28 per cent, ING Group up 27 per cent, Swiss Re up 21.6 per cent and Standard Life up 20.5 per cent.

Merrill Lynch upgraded CS Group to "neutral" from "underperform", saying last week's 40-per cent fall had been overdone.

In Britain, banks taking part in the bailout - notably HBOS, Lloyds TSB and Royal Bank of Scotland (RBS) - saw their shares fall sharply while shares in those going it alone without taxpayer funds, such as HSBC and Barclays, gained.