* FTSEurofirst 300 rises 2.1 percent
* VW resumes spectacular surge on short-covering
* BP jumps after earnings beat forecasts; other oils gain
* Market expects Fed rate cut of 0.5 percent on Wednesday
By Brian Gorman
LONDON, Oct 28 (Reuters) - European shares rose in early
trade on Tuesday to break a five-day losing streak, helped by a
surge in Volkswagen <VOWG.DE> and sharp gains in heavyweight oil
group BP <BP.L> after quarterly profits jumped.
At 0955 GMT, the FTSEurofirst 300 index of leading European
shares was up 2.1 percent at 833.00 points, and had been as high
as 839.86. The index has lost 21.6 percent in October, hurt by a
credit crisis and recession worries.
Volkswagen <VOWG.DE> was up 64 percent, following its 146
percent surge on Monday. Short sellers piled into the stock to
sew up their speculative positions after Porsche <PSHG_p.DE>
bought up nearly all VW's remaining free float.
BP rose 4.2 percent after it reported a 148 percent rise in
third-quarter replacement cost profit, at $10.03 billion,
boosted by higher oil prices.
Total <TOTF.PA>, ENI, and Royal Dutch Shell were up between
0.3 and 3.1 percent.
"It's no real surprise that bargain-hunters are coming into
these markets, despite the fact that expectations for the
economy are tumbling and the outlook on the corporate front is
gloomy," said Henk Potts, strategist at Barclays stockbrokers.
"There's too much bad news priced into these markets.
Long-term investors can look through the dark clouds ... and can
see the cheap valuations."
BG Group <BG.L> was up 2 percent after launching a A$5.6
billion ($3.4 billion) friendly takeover bid for Australia's
Queensland Gas Co Ltd <QGC.AX>(QGC) as it tries to secure gas to
boost its position in Asia's lucrative liquefied natural gas
market.
Most miners were higher as metals prices in London and
Shanghai recovered after early falls, bouncing off
lows on the back of losses by the dollar ahead of a U.S. central
bank meeting later in the day.
London Metal Exchange copper <MCU3=LX> for delivery in three
months rose 0.75 percent to $4,030, having dipped almost 5
percent earlier.
BHP Billiton <BLT.L>, Rio Tinto <RIO.L>, and Xstrata <XTA.L>
were up between 3.3 and 6.8 percent.
But Eurasian Natural Resources Corp. <ENRC.L> and Kazakhmys
<KAZ.L> were down 5.9 and 4 percent respectively after the
Kazakh government said the two companies would reduce output due
to the global economic turmoil.
Later in the session, the U.S. Federal Reserve starts a
two-day meeting expected to cut the fed funds rate -- now at
1.50 percent -- by at least a further 50 basis points.
"That should set the tone for the Bank of England and the
ECB to cut rates," said Potts of Barclays. "The inflation
picture has improved."
AVIVA RISES
Britain's FTSE 100 was up 2.1 percent, Germany's DAX was up
9 percent, boosted by Volkwagen <VOWG.DE>, and France's CAC-40
was up 0.3 percent.
Aviva <AV.L> surged 10.8 percent after the insurer said it
had had no discussions with the UK government about capital
support and reported a 12 percent rise in sales for the nine
months to September.
Its rival Aegon <AEGN.AS> was up 0.9 percent after saying
that the Dutch government would provide 3 billion euros capital.
The company said it will scrap its final 2008 dividend, as it
reported a third-quarter loss of 350 million euros.
Terms of the injection are nearly identical to the deal
between the Dutch government and financial group ING <ING.AS>
announced last week.
ING was one of the biggest losers in the index on Tuesday,
down 8.9 percent, after Fitch cut its outlook to "negative" from
"stable".
Other banks that fell included Deutsche Postbank
<DPBGn.DE>, down 9.7 percent after JP Morgan slashed its price
target to 16.5 euros from 52.3 euros while maintaining a
"neutral" rating.
French bank Societe Generale <SOGN.PA> was down 2.2 percent
despite moving to reassure investors after a sharp fall in its
share price on Monday, saying it was sticking by its profit
forecast and had no bad surprises in its market operations.
Spain's biggest bank, Santander <SAN.MC>, was up 2 percent
after posting a 5.5 percent rise in net profit for the first
nine months to September, underpinned by robust recurrent
earnings from its core retail banking business.
(Editing by Paul Bolding)
