* FTSEurofirst 300 <> rises 3.3 pct to 861.55 points
* Banks lead rally as investors bet on U.S. rate cut
* VW biggest faller in Europe, Porsche tops gainers
By Rebekah Curtis
LONDON, Oct 29 (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 0935 GMT the pan-European FTSEurofirst 300 index <>
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 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 1815 GMT. 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.
"The market should be able to rally on from that," he added.
"We are due a significant rally from the levels we've got down
to."
Japan could follow the United States in cutting interest
rates this week, a source with knowledge on the matter said.
Tokyo's Nikkei average <> soared 7.7 percent.
Oil and gas producers boosted the market, with BP <BP.L> and
Royal Dutch Shell <RDSa.L> gaining 3.4 and 4 percent
respectively, and Total <TOTF.PA> up 7 percent as U.S. crude oil
rallied 2.5 percent.
VW DROPS, PORSCHE SOARS
Volkswagen <VOWG.DE>, Europe's biggest faller, dived 44
percent after main Porsche <PSHG_p.DE> took steps to ease a
squeeze on short-sellers that more than quadrupled the stock in
days and briefly made it the world's most valuable company.
Deutsche Boerse meanwhile said will cut the weighting of shares
in the blue-chip German DAX index <>.
Porsche, Europe's top gainer, leapt about 36 percent.
Around Europe, Britain's FTSE 100 <> added 3.5 percent,
Germany's DAX <> fell 3.5 percent, weighed by the losses
in heavyweight Volkswagen, and France's CAC <> rose 5
percent.
Topping the FTSE 100, shares in Old Mutual soared 22.6
percent, bouncing back after falling on Tuesday on U.S. economic
concerns.
Bayer <BAYG.DE> added 8.3 percent after it stood by its
full-year guidance on Wednesday, defying a slump at its plastics
and foams unit and citing strong demand for its prescription
drugs and its pharming pesticides.
EADS <EAD.PA> rose 6.1 percent after Louis Gallois, chief
executive of the French European aerospace group, on Tuesday
said its aircraft maker Airbus had not seen a wave of
cancellations due to the global financial crisis. []
On the downside, Norwegian telecoms group Telenor <TEL.OL>
sank 14.5 percent after reporting a bigger fall than expected in
third-quarter core earnings and saying it would buy 60 percent
of Indian operator Unitech Wireless for $1.07 billion. Telenor
also kept its outlook for 2008, it said. []
(Editing by Quentin Bryar)
