Banks lead rebound in European shares ahead of Fed

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, UBS and BNP
Paribas rose 2.5-5%, recovering some of the losses from Monday when financial
stocks around the world were battered by the fire sale of Bear Stearns to
JPMorgan

By 10,45 a.m. the
FTSEurofirst 300 index of top European shares was up 1.6% at 1,218.85 points. The
index fell 4.4 % 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 %, to
shield the U.S.
economy from further damage stemming from the crisis in financial markets.

On the corporate front
Lehman Brothers and Goldman Sachs report earnings.

The DJ Stoxx index of
European banking shares was up nearly 2 % after having fallen by 6.1 % on
Monday.