* FTSEurofirst up 4 pct on bailout of Fannie, Freddie
* Index on track for biggest 1-day gain since January
* Banks top gainers; only 7 stocks on FTSEurofirst decline
By Brian Gorman
LONDON, Sept 8 (Reuters) - European shares soared early on
Monday, bouncing from last week's slump after the U.S.
government seized control of major U.S. mortgage firms Fannie
Mae <FNM.N> and Freddie Mac <FRE.N>.
At 0837 GMT, the FTSEurofirst 300 <FTEU3> was up 4
percent at 1,170.20. The index is on course for its biggest
one-day gain since Jan. 24.
"This is such a huge story," said Arthur Van Slooten,
strategist at Societe Generale. "Nothing else is making much of
an impact today."
He added: "The credit spreads had been one of the major
headwinds in the market. Now they should improve, and it's a
huge relief. This will be a turning point for the market. But
there's still some bad news to come in Europe, such as a
recession."
European credit spreads enjoyed their sharpest rally since
March, with the investment grade Markit iTraxx Europe index
<ITEEU5Y=GF> more than 11 points tighter versus late on Friday.
The U.S. government on Sunday seized control of mortgage
finance companies Fannie Mae and Freddie Mac, launching what
could be its biggest bailout ever to support the U.S. housing
market and ward off more global financial market turbulence.
The takeover plan makes it more explicit that debt issued by
Fannie and Freddie will be backed by the U.S. government and
curbed worries about possible losses among financial
institutions and investors that hold such paper, analysts said.
Banks surged, with UBS <UBSN.VX> up 12 percent, BNP Paribas
<BNPP.PA> up 8.9 percent, Credit Agricole <CAGR.PA> up 10.3
percent and HBOS <HBOS.L> up 12.7 percent.
The top 10 gainers in the index were banks.
Anglo Irish Bank <ANGL.I> was the biggest gainer, up 14.3
percent. Allied Irish Bank <ALBK.I> was up 12.8 percent.
The DJ Stoxx European banking sector index <.SX7P> was up
7.6 percent.
Freddie Mac <FRE.F> shares in Frankfurt fell 50 percent,
before being suspended.
DRUGS RARE LOSERS
Only seven shares on the index were lower. This included
three drugs companies, as traders said investors were switching
away from defensives. GlaxoSmithKline <GSK.L> was the worst
performer, down 2.1 percent.
The FTSEurofirst 300 has fallen more than 22 percent so far
this year, as banks suffered huge losses due to a global credit
crisis and the economy slowed.
On Monday, economists at UBS cut their growth forecasts. The
bank said it now expected growth of 1.2 percent in the eurozone
in 2008, down from the previous estimate of 1.6 percent. For
2009, it forecasted 0.7 percent, a cut from 1.1 percent.
It said it continued to see substantial downside to
bottom-line earnings estimates. However, it said the equity
market was already pricing in the fall in earnings forecasts.
In other news, Associated British Foods <ABF.L> was up 1.3
percent, underperforming the market, after it said it expects
discount fashion chain Primark to show underlying sales ahead 2
percent over the spring and summer months, and that it expects
to meet its annual profit expectations.
(Editing by Sue Thomas)
