* FTSEurofirst 300 up 10 pct, biggest one-day gain on record
* Financials lead on moves to unfreeze credit, rescue banks
* GDP Suez in stand-out rebound as price cap fears fade
By Peter Starck
FRANKFURT, Oct 13 (Reuters) - European shares rose 10
percent on Monday -- 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 percent higher at 937.41 points, more than erasing
Friday's 7.6 percent slide to a five-year low close.
Benchmark U.S. equity indexes <> <.SPX> <> were
about 6 percent 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 U.S. 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 <CSGN.VX> rising
28 percent, ING Group <ING.AS> up 27 percent, Swiss Re <RUKN.VX>
up 21.6 percent and Standard Life <SL.L> up 20.5 percent.
Merrill Lynch upgraded CS Group to "neutral" from
"underperform", saying last week's 40-percent fall had been
overdone.
In Britain, banks taking part in the bailout -- notably HBOS
<HBOS.L>, Lloyds TSB <LLOY.L> and Royal Bank of Scotland (RBS)
<RBS.L> -- saw their shares fall sharply while shares in those
going it alone without taxpayer funds, such as HSBC <HSBA.L> and
Barclays <BARC.L>, gained.
HBOS fell 27.5 percent, Lloyds TSB lost 14.5 percent and RBS
dropped 8.4 percent. HSBC rose 7.5 percent and Barclays was up
3.7 percent.
Credit Suisse, which is "underweight" banks, said in a
global equityy strategy note that the dilution effect of the
bailouts for current shareholders would be "huge".
"Equity holders remain at risk from higher impairment
charges and equity dilution. Valuations do not take sufficient
account of this yet, in our view," Credit Suisse said in a
separate note on British banks.
Shares in Societe Generale <SOGN.PA> recovered from
double-digit losses to close 2 percent lower after the French
bank denied what it said were "malicious rumours that it would
have made significant losses on structured products in the past
few days that necessitate a recapitalisation of the bank".
EARNINGS RECESSION
Strategists said that although the coordinated international
action taken to breathe new life into credit markets and give
manufacturing and service sector companies better access to
loans for investments would help, it was unlikely to prevent a
slide in corporate earnings.
Shares in Dutch group Philips <PHG.AS> fell 3.2 percent
after the company posted a sharply lower third-quarter core
profit that missed forecasts, partly hurt by its normally
resilient healthcare unit as orders in the United States slowed
due to the credit crisis.
"We had not budgeted on this level of impact from the weaker
capex environment at hospitals, a problem exacerbated by the
U.S. credit crunch and rising budget deficits at many
governments around the world," Dresdner Kleinwort said.
"If the mix seen in the third quarter of 2008 does not
reverse quickly in 2009, margin progression could become a
distant hope," Dresdner Kleinwort said in a note.
Morgan Stanley predicted "a big earnings recession" and
advised investors to be "overweight" defensives and
"underweight" cyclicals.
"Risks are high and capital preservation is key. And the
next bull market will only start at the earliest in the summer
of 2009," Morgan Stanley said in a European strategy note.
Utilities, usually regarded as a defensive safe haven, rose
16 percent on the DJ Stoxx European sector index <.SX6P>.
GDF Suez <GSZ.PA> rallied 25 percent after the company said
Belgian energy minister Paul Magnette's proposals last week to
cap wholesale electricity prices had not been discussed at
government level and that such proposals would be contrary to
policies of the Belgian government and the European Commission.
GDF Suez's shares lost as much as one third of their value
at one point last week on price cap fears.
"This is a very attractive entry point," Citi said in a
research note on GDF Suez.
Higher base metals prices lifted shares in heavyweight
mining companies such as Anglo American <AAL.L>, up 14.6
percent, and Rio Tinto <RIO.L>, up 15.4 percent.
A rise in crude oil prices helped oil companies' shares,
with BP <BP.L> adding 11.2 percent, Total <TOTF.PA> 10.3 percent
and Royal Dutch Shell <RDSa.L> 8.8 percent.
(Additional reporting by Brian Gorman and Rebekah Curtis in
London; Editing by Greg Mahlich)
