Banks lead rebound in European shares ahead of Fed

                                
 By Amanda Cooper
                                
 LONDON, March 18 (Reuters) - European shares rose for the
first time in four trading days on Tuesday, led by a rebound in
financial stocks ahead of the Federal Reserve's interest rate
decision.
                                
 HSBC <HSBA.L>, UBS <UBSN.VX> and BNP Paribas <BNPP.PA> rose
2.5-5 percent, recovering some of the losses from Monday when
financial stocks around the world were battered by the fire sale
of Bear Stearns <BSC.N> to JPMorgan <JPM.N>.
                                
 By 0845 GMT the FTSEurofirst 300 index <.FTEU3> of top
European shares was up 1.6 percent at 1,218.85 points. The index
fell 4.4 percent on Monday to its lowest closing level in 2-1/2
years.
                                
 "The slump we had yesterday calls for a rebound, but I doubt
it's sustainable simply due to the ... uncertainty in the
financial sector and the response to what the Fed will do
today," said FrankfurtFinanz strategist Heino Ruland.
                                
 "There are a couple of punters out there betting on a 100
basis point cut in base rates ... I doubt that would happen. I
still believe 50 basis points is a safe bet, plus the 25 basis
points (cut in the discount rate) that we saw on Sunday. They
should keep their powder dry," he said.
                                
 The Fed is widely expected to deliver a steep cut in
interest rates, which stand at 3 percent, to shield the U.S.
economy from further damage stemming from the crisis in
financial markets.
                                
 On the corporate front Lehman Brothers <LEH.N> and Goldman
Sachs <GS.N> report earnings.
                                
 The DJ Stoxx index of European banking shares <.SX7P> was up
nearly 2 percent after having fallen by 6.1 percent on Monday.
                                
 
                                
 DOWN, DOWN, DOWN
                                
 The FTSEurofirst 300 is still down about 20 percent so far
this year, and by over 25 percent from last July's 6-1/2 year
peaks as fear over fallout from the credit markets has hit
banks' bottom lines and threatened consumer spending.
                                
 Financial markets show investors expect the Fed to deliver
one of the steepest interest rate cuts since 1982 after the
European market close on Tuesday, after unveiling a series of
measures aimed at improving banks' access to liquidity on the
money markets to unclog the financial system.
                                
 "The central banks are valiantly trying to restore liquidity
in the financial markets and cauterise the wounds from the
demise of Bear Stearns," said ING in a morning note.
                                
 "Sadly, there can be little confidence that this will remedy
the interconnected problems that continue to plague the markets:
contracting credit availability, asset price losses and
uncertainty, burgeoning default risks and counterparty mistrust.
With further bank asset write-downs about to be reported, the
availability of credit will continue to be constrained," ING
said.
                                
 Rio Tinto <RIO.L> boosted the mining sector after Chinalco
said it was more likely to raise its stake in the company than
cut it. Shares in Rio rose 4.1 percent.
                                
 Anglo American <AAL.L> rose 2 percent, while Vedanta
Resources <VED.L> gained 2.6 percent and Antofagasta <ANTO.L>
rose 1.3 percent.
                                
 Shares in German industrial conglomerate Siemens <SIEGn.DE>
were among the top positive influences on the broader market,
rising by more than 3.5 percent to pare some of Monday's 17
percent fall. This was the largest one-day decline in Siemens
shares since entering the blue-chip DAX in April 1991.
                                
 In Frankfurt, the DAX <.GDAXI> rose 1.6 percent, while
Britain's FTSE 100 <.FTSE> rose 1.7 percent, helped by the
heavyweight mining and oil sectors. France's CAC-40 <.FCHI> rose
1.4 percent.
                                
 A recovery in the price of crude oil <CLc1> to above $106 a
barrel pushed up shares in BP <BP.L> and Total <TOTF.PA> by
1.5-1.9 percent.
                                
 Crude oil fell by more than 4 percent on Monday in its
biggest one-day fall since early August, fuelled by investment
funds limiting their exposure to commodities in the face of
deteriorating conditions in the global financial markets.
                                
 Also supporting the broader equities market was a tightening
in credit spreads, indicating an easing in investors'
nervousness, along with a 1.6 percent fall in a measure of
European options volatility <.V1XI>, the first decline in this
index in over a week.
                                
 Among losers was top German retailer Metro <MEOG.DE>, which
lost 2 percent after reporting what traders said was a
disappointing outlook and 2007 earnings per share.
                                
 (Reporting by Amanda Cooper; Editing by Erica Billingham)