* FTSEurofirst 300 index rebounds after dismal week
* Banking index jump 14 pct on massive EU rescue package
* BP falls further on fears over oil spill crisis
* For up-to-the-minute market news, click on []
By Brian Gorman
LONDON, May 10 (Reuters) - European shares posted their
biggest daily rise in more than 17 months on Monday after
European central banks started to buy euro zone government bonds
under a $1 trillion rescue package.
The pan-European FTSEurofirst 300 <> index of top
shares surged 7.4 percent to close at 1,038.91 points --the
index's biggest one-day percentage gain since November 24, 2008
-- while volumes were more than two and a half times the index's
90-day average volume.
Stocks bounced back after tumbling 8.9 percent last week on
worries that Greece's debt crisis would spread to other euro
zone countries.
Financial stocks were the most spectacular risers, with the
STOXX Europe 600 banking index <.SX7P> jumping 14 percent
following a 14 percent drop last week.
BNP Paribas <BNPP.PA>, Banco Santander <SAN.MC>, BBVA
<BBVA.MC>, Societe Generale <SOGN.PA> and UniCredit <CRDI.MI>
rose between 20.9 and 23.9 percent.
"Given the amount of money that is being talked about, you
can prop up markets for a certain period of time," said Andy
Lynch, fund manager at Schroders.
"The liquidity questions have been addressed and today is
about short-covering. But the big picture is whether the
individual countries are going to have the discipline to sustain
the spending cuts needed not just over three months, but over
five to six years."
A rescue package was hammered out by European Union finance
ministers, central bankers and the International Monetary Fund
in weekend negotiations. []
Euro zone central banks began buying government bonds and
the ECB said it would also re-start dollar lending operations
and bring back some of the emergency liquidity measures it had
started to phase out.
Insurers were among other stocks to strongly gain, with AXA
<AXAF.PA> and ING Groep <ING.AS> up 21.9 and 24.6 percent
respectively.
BP FALLS
Index heavyweight BP <BP.L> was among the small number of
losers, falling 0.9 percent to its lowest close since October.
The company said an oil spill in the Gulf of Mexico had cost
it $350 million so far, suggesting the final clean-up bill could
be much higher than many analysts have predicted.
[]
However, other energy stocks were in demand as crude <CLc1>
prices gained, helped by a weaker dollar.
BG Group <BG.L>, Royal Dutch Shell <RDSa.AS>, Repsol
<REP.MC> and Total <TOTF.PA> rose between 3.6 and 11.9 percent.
Across Europe, Germany's DAX <> rose 5.3 percent and
France's CAC 40 <> gained 9.7 percent.
Some of the countries that stood most to gain from the
emergency package saw their shares surge. Spain's IBEX <>
gained 14.4 percent, Portugal's PSI 20 <> rose 10.7
percent and Italy's benchmark <.FTMIB> gained 11.3 percent.
Britain's FTSE 100 <> index rose 5.2 percent. Like
other countries outside the euro, Britain is less affected by
the euro zone debt crisis and the aid package. However, it
continued to suffer from political uncertainty following last
week's inconclusive general election.
Prime Minister Gordon Brown said he would step aside to give
his Labour Party a better chance in talks to form a government
with the Liberal Democrats, who are already in coalition talks
with the Conservative Party. [].
The Bank of England kept interest rates at 0.5 percent and
made no change to stimulus measures designed to nurse the
economy back to health. []
Wall Street was higher around the time European bourses were
closing. The Dow Jones <>, S&P 500 <.SPX> and Nasdaq
Composite <> were up between 3.8 and 4.2 percent.
(Editing by David Cowell)
