* European indexes up on Fannie Mae, Freddie Mac bailout
* London Stock Exchange hit by connectivity problems
* AXA top gainer as financials rally; downgrades hit Nokia
By Peter Starck
FRANKFURT, Sept 8 (Reuters) - European shares rose strongly
on Monday, led by financials such as French insurer AXA
<AXAF.PA> on the back of the U.S. government's move to rescue
mortgage financiers Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
The London Stock Exchange (LSE) <LSE.L>, Europe's leading
equities market measured by volume, suffered from connectivity
problems which hampered trading for most of the session.
Germany's DAX index <> closed 2.2 percent higher, the
French CAC <> gained 3.4 percent, Zurich's SMI <>
climbed 2.9 percent, the MIB 30 <> in Milan also rose 2.9
percent and Madrid's IBEX <> added 3.7 percent.
Britain's FTSE 100 <>, static for most of the day, was
up 3.9 percent and the European benchmark FTSEurofirst 300 index
<>, which includes UK shares, gained 3.3 percent,
according to Reuters data.
The Fannie Mae and Freddie Mac bailout helped calm
investors, many of whom have been badly burned this year by big
losses at banks and as well as slowing economic growth and
persistently high inflation.
"The hope that the U.S. mortgage market gets a kick-start
from the government's actions is clearly a fundamental positive
as well as a huge boost in terms of sentiment," Barclays Wealth
said in a note.
Killik & Co said the U.S. government's move "has both eased
short-term uncertainty from the financial system and provided a
substantial boost to investor sentiment."
But Credit Suisse advised investors to sell into the rally.
"This is the fourth extraordinary measures from the
Fed/Congress this year. Previous measures have seen a 6 percent
market rally over the following 8-10 days but clearly previous
measures have not been enough," Credit Suisse said in a global
equity strategy note.
EARNINGS TROUGH
Corporate earnings are 15 percent above trend in Europe and
8 percent above trend in the United States, excluding resources
and financials, Credit Suisse said.
"Earnings typically trough around 15 percent below trend and
the majority of the time, equities do not trough until earnings
are below trend," it said.
On Friday, AXA was the top blue-chip gainer in Europe with a
rise of 12.5 percent. Swiss bank UBS <UBSN.VX> rose 8.3 percent
and French bank Societe Generale <SOGN.PA> was up 6.8 percent.
Among UK financials, Reuters data pointed to a rise of 11.9
percent for Barclays <BARC.L>, 11.4 percent for HBOS <HBOS.L>
and 11.3 percent for Royal Bank of Scotland <RBS.L>.
"We need normal trading conditions to return so we can
actually see where the true value now lies in the market," said
Paul Webb, chief dealer at CMC Markets in London, commenting on
the outage at the LSE.
European credit spreads measured by the investment-grade
Markit iTraxx Europe index <ITEEU5Y=GF> tightened 10.5 basis
points, according to data from Markit.
"The credit spreads had been one of the major headwinds in
the market. Now they should improve, and it's a huge relief,"
said Arthur Van Slooten, strategist at Societe Generale.
Away from financials, mobile phone maker Nokia <NOK1V.HE>
was among the day's leading blue-chip losers, falling 1.3
percent after several analyst downgrades and price target cuts
triggered by the company's announcement on Friday it was losing
market share.
Eni SpA shares <ENI.MI> eased 0.3 percent after the Italian
oil and gas major agreed to buy Canada's First Calgary
Petroleums Ltd <FCP.TO> in a cash deal worth $865 million, the
latest in a series of acquisitions aimed at boosting its oil and
gas reserves.
(Additional reporting by Atul Prakash in London; Editing by
Paul Bolding)
