* FTSEurofirst 300 up 0.2 pct, bounces after early fall
* Banks hit by U.S. bailout setback; Irish financials soar
* Miners and retailer Tesco advance
By Peter Starck
FRANKFURT, Sept 30 (Reuters) - European shares were little
changed on Tuesday morning, with weakness in banks, after the
U.S. Congress failed to pass a $700 billion financial bailout
package, offset by strength in miners and retailer Tesco
<TSCO.L>.
By 0931 GMT, the FTSEurofirst 300 index of top European
shares was up 0.2 percent at 1,049.23 points, rebounding from an
early slide which had taken it to its lowest level since Nov.
22, 2004.
The European benchmark, which fell 5.2 percent on Monday,
looks headed for a loss of 12 percent for the month and a loss
of almost 13 percent for the quarter.
Analysts attributed the turbulence to continued uncertainty
about whether the U.S. Congress will agree legislation -- dubbed
TARP -- to relieve the worst financial crisis since the Great
Depression.
"The package must come and it will come. But it will be
painful for the banks, which will have to clean up their balance
sheets," said Heino Ruland, analyst at FrankfurtFinanz.
"As no news on the approval of the TARP is likely to arrive
until Thursday, safe haven-type trades should remain popular,"
UniCredit said in a note.
Safe-haven trading usually means that investors sell stocks
and buy fixed-income securities, notably government bonds.
In line with recent trading days, banks <.SX7P> were the
main drag on the main index, with Royal Bank of Scotland <RBS.L>
down 8 percent, Italy's UniCredit <CRDI.MI> down 5.4 percent,
French BNP Paribas <BNPP.PA> 2.9 percent lower and Germany's
Deutsche Bank <DBKGn.DE> falling 3.1 percent.
Irish financials outperformed after the Irish government
said it would start a guarantee arrangement to safeguard all
deposits at six financial institutions: Allied Irish Bank
<ALBK.I>, Bank of Ireland <BKIR.I>, Anglo Irish Bank <ANGL.I>,
Irish Life and Permanent <IPM.I>, Irish Nationwide Building
Society and the Educational Building Society.
The scheme guarantees liabilities of approximately 400
billion euros, an Irish finance ministry spokesperson said.
Anglo Irish was up 17 percent, Irish Life and Permanent rose
24 percent and Bank of Ireland advanced 6.4 percent.
INTERBANK MARKET
Shares in Dexia <DEXI.BR> <DEXI.PA> shot up 18 percent after
the Belgian-French financial services group said it will receive
a capital boost of 6.4 billion euros from Belgium, France,
Luxembourg and key shareholders.
The reluctance of European banks to lend to each other was
highlighted by European Central Bank (ECB) data showing bank's
overnight deposits with the ECB at a fresh record, keeping money
markets paralysed despite massive liquidity injections.
"Three-month interbank interest rates are still elevated, in
spite of large-scale liquidity injections. The longer that
interbank rates remain high, the greater the risk of bigger
problems in the banking system and the broader economy," ABN
AMRO said in a note, adding that such concerns had triggered a
renewed bout of risk aversion.
ING agreed, saying: "Things are looking increasingly
desperate for the financial system. If (credit market) spreads
do not moderate soon, there will be further bank failures in the
days ahead."
Calls for central banks to cut interest rates to relieve the
strain grew louder.
"Given the increasingly difficult situation on the financial
markets, Thursday's ECB council meeting is looming large. Until
then, particular importance will be attached to comments from
central bank officials," German bank Helaba said in a note.
Morgan Stanley said the time had come "for coordinated cuts
to policy rates and a clear effort to achieve steeper yield
curves."
Boosted by gold prices, miners contributed most points to
the FTSEurofirst 300 index, with Rio Tinto <RIO.L> 5 percent
higher, BHP Billiton <BLT.L> up 2.8 percent and Anglo American
<AAL.L> adding 2.3 percent.
Britain's Tesco <TSCO.L>, the world's third-biggest retailer
behind France's Carrefour <CARR.PA> and U.S. group Wal-Mart
<WMT.N>, rose 3.1 percent after it reported first-half profits
that met market expectations and announced a higher quarterly
dividend.
Shares in Sweden's H&M <HMb.ST> fell 9.4 percent after the
world's third-biggest clothing retailer by sales reported a
lower than expected third-quarter pretax profit as sales slipped
in tough market conditions.
(Additional reporting by Dominic Lau in London; editing by
Simon Jessop)
