* Europe shares rise 2.2 percent to 834.36 points
* Volkswagen surges again on short-covering
* Fall in banks curb market gains
By Rebekah Curtis
LONDON, Oct 28 (Reuters) - European shares closed 2.2
percent higher percent on Tuesday, snapping a five-day losing
run as Volkswagen <VOWG.DE> rocketed again on short-covering but
losses in banks took the shine off the market's earlier surge.
The FTSEurofirst 300 index <> of leading European
shares ended 2.2 percent higher at 834.36 points, having risen
to a day's high of 851.17.
The index has lost about 45 percent in value so far this
year, whipped by a credit crisis that has pushed the world
economy to the brink of recession.
"There is the potential for a sizable rebound...In bear
markets we have seen sizable rebounds in the past," said Bernd
Meyer, head of pan-European equity strategy at Deutsche Bank in
London.
"(But) as long as investors are not sure where the
macro-economy is heading...the market will have a problem seeing
a sustained upswing."
Volkswagen <VOWG.DE> surged more than 80 percent, adding to
a 146 percent rise the day before, as short sellers continued to
pile into the stock on news at the weekend that Porsche
<PSHG_p.DE> had bought up much of VW's remaining free float.
VW briefly became the world's biggest company by market
value on Tuesday. Porsche was up 9.9 percent. []
"We're in a market full of anomalies at the moment," said
Graham Secker, UK equity strategist at Morgan Stanley in London.
"The mispricing everywhere is quite extraordinary," he
added.
Banks took a fresh beating. Shares in French bank Societe
Generale <SOGN.PA> slumped for a second day in a row, down more
than 12 percent as traders cited a possible exposure to the
share price surge at Volkswagen.
The European banks sector <.SX7P> lost 3.5 percent, with BNP
Paribas <BNPP.PA> off 10.4 percent, Credit Agricole <CAGR.PA>
down 13.4 percent and Deutsche Bank <DBKGn.DE> shedding 13.3
percent.
Asia-focused bank Standard Chartered <STAN.L> rose 2.9
percent, after saying it made good progress in the third quarter
of 2008 despite slower economic growth in the region, and
reassured on its capital strength. London-listed Standard
Chartered generates two-thirds of its revenues in Asia.
DAX SURGES
Across Europe, Britain's FTSE 100 <> was up 1.9
percent, Germany's DAX <> was up 11.3 percent, boosted by
Volkswagen, and France's CAC-40 <> was up 1.6
percent.
U.S. stocks also rose. The U.S. Federal Reserve was to
begin a two-day interest-rate policy meeting later on Tuesday,
and investors expected the Fed to cut rates -- now at 1.50
percent -- by at least a further 50 basis points.
In Europe heavyweight stock BP <BP.L> rose 5.4 percent after
it reported a 148 percent rise in third-quarter replacement cost
profit, at $10.03 billion, boosted by higher oil prices.
"We like the oil stocks. Buying big blue-chip stocks where
the dividend yield is higher than the PE is a sensible thing to
do," Morgan Stanley's Secker added.
Total <TOTF.PA> and Royal Dutch Shell <RDSa.L> were up 6.2
and 4.7 percent, respectively.
BG Group <BG.L> was up 7 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 liquefied natural gas market.
Aviva <AV.L> rose 5.6 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 peer Friends Provident <FP.L> rocketed more than 28
percent, topping the gainers on the FTSE 100.
Dutch insurer Aegon <AEGN.AS> was down 14 percent after
saying that the Dutch government will provide 3 billion euros of
capital. The company said it will scrap its final 2008 dividend,
as it reported a third-quarter loss of 350 million euros.
The terms of the cash injection are nearly identical to the
deal between the Dutch government and financial group ING
<ING.AS> announced last week.
ING shed 13.4 percent after Fitch cut its outlook to
"negative" from "stable".
(Additional reporting by Brian Gorman; Editing by Erica
Billingham)
