* FTSEurofirst 300 gains 0.6 percent
* AIG bailout, Morgan Stanley results boost financials
* Commodities gain as crude rises
By Joanne Frearson
LONDON, Sept 17 (Reuters) - European shares rebounded in
choppy trade early on Wednesday with banks in the vanguard after
the U.S. government bailed out insurer AIG <AIG.N> and commodity
shares tracked metal and oil prices higher.
At 0909 GMT, the FTSEurofirst 300 <> index of top
European shares was up 0.6 percent at 1,097.68 points. The index
had lost 2.6 percent on Tuesday and 3.6 percent on Monday.
UK group HBOS <HBOS.L> jumped 9.7 percent, reversing early
losses of more than 30 percent after a person familiar with the
matter said that it was in merger talks with Lloyds TSB
<LLOY.L>. The two banks declined to comment.
Other banks recovered from steep losses on Tuesday. UBS
<UBSN.VX> gained 5.5 percent and Barclays <BARC.L> rose 9.9
percent after it agreed to buy several parts of Lehman Brothers
<LEH.H> <LEH.P>.
Investors fears about the banking sector were reignited
after the interbank cost of borrowing overnight dollar funds
was indicated as high as 8 percent, reflecting the continued
difficulty European banks have in accessing funds to meet their
dollar exposure and liabilities.
It suggests dollar lending between banks remains sporadic at
best, in part because the foreign exchange swaps markets between
institutions is frozen, analysts said.
"We tend to look at the financial system as the backbone of
the economy. It appears to be broken," said Mike Lenhoff, chief
strategist at Brewin Dolphin.
"The market is all over the place and is a reflection of the
concern everyone has about the financial system. But it is not
as if the markets are plummeting again ... the American
authorities are trying to do their best to provide some sort of
stability," added Lenhoff.
This comes after troubled American International Group
<AIG.N> got an $85 billion emergency rescue package from the U.S
Federal Reserve for two years in exchange for a 79.9 percent
equity stake.
Across Europe the FTSE 100 <> index was up 0.8 percent,
the German DAX <> was up 0.13 higher, while France's CAC
40 <FCHI> index was still in the red down 0.1 percent.
COMMODITIES IN DEMAND
Commodity stocks were in demand as crude <CLc1> gained 3.5
percent.
BG Group <BG.L>, Royal Dutch Shell <RDSb.L>, BP <BP.L>, and
Total <TOTF.PA> were trading between 0.4 percent to 1.4 percent.
"Commodities could rally a bit today on the basis that the
threat of worldwide rcession has been avoided," said Bernard
McAlinden, strategist at NCB Stockbrokers.
Mining stocks were among the biggest gainers following the
sell off. Anglo American <AAL.L>, BHP Billiton <BLT.L>, Lonmin
<LMI.L>, Kazakhmys <KAZ.L>, Rio Tinto <RIO.L>, Vedanta
Resources <VED.L> and Xstrata <XTA.L> were trading between 0.6
percent to 3.5 percent.
Looking at individual stocks Renault <RENA.PA> was down 3.1
percent after talk of a possible downgrade after the group said
it was sticking to profitability targets of 4.5 percent in 2008
and 6 percent in 2009.
And Continental <CONG.DE> fell 3.2 percent after both
Societe Generale and BNP Paribas cut the firm's rating and price
target.
Later in the session investors will look at U.S. housing
starts which are due out at 1230 GMT.
(Reporting by Joanne Frearson; Editing by Hans Peters)
