UPDATE 3-Berlusconi urges Italy hold shares, UniCredit fixed

(Adds quote, Generali, UniCredit closing price)

By Stephen Brown

ROME Oct 9 (Reuters) - Prime Minister Silvio Berlusconi said on Thursday the only problem for Italy's financial system -- UniCredit, the second-biggest bank -- had now been resolved and urged people to hold onto shares in Italian companies.

"Italian banks did not sign up to any 'toxic products' and had only this problem, which has now been resolved," he said.

"We advise Italians not to sell their shares but hold onto them, because in 18 to 24 months the share price will be back at the right level," said the premier, extolling the virtues of firms like energy giants Enel (ENEI.MI) and Eni (ENI.MI).

UniCredit (CRDI.MI), singled out by sellers in recent days as the only big Italian bank with major exposure abroad, saw its shares surge on Thursday, closing up 9.2 percent at 2.67 euros.

The DJ Stoxx index of European banks .SX7P was down 0.75 percent, after notching gains following action by central banks and governments to support the financial sector.

Ratings agency Moody's said capitalisation levels of Italian banks were adequate and it was "calm" about them in general and about Unicredit's Aa3 rating, which it cut from Aa2 on Tuesday, in particular.

Berlusconi, pushing through a decree offering banks a public cash injection in return for non-voting shares, said UniCredit's capital increase at the weekend had been requested by the Bank of Italy to cover losses for its German unit.

"It found the capital on the market, so this was the only problem and it has been resolved," he told a news conference.

The government says Italian banks have enough capitalisation and liquidity to weather the storm partly thanks to conservative strategies that have left them less exposed than European peers. UniCredit was the exception, expanding aggressively abroad.

The Milan-based bank has had to tap investors to increase capital by 6.6 billion euros ($8.99 billion), cut 700 investment banking jobs and slash earnings forecasts for 2008.

Several key shareholders have pledged funds for the capital hike, which is backed by convertible bonds. Berlusconi said insurer Generali (GASI.MI) would contribute 300 million euros.

"STOP THE PANIC"

The centre-right prime minister stressed that his crisis plan means any bank needing help would remain privately run, even if the state becomes a stakeholder under the new scheme.

Economists said the plan was thin on detail and relied on the government's word that it would intervene if necessary.

Italy has not created a rescue fund as such, but will allocate resources on a case-by-case basis. It also said the state would guarantee bank deposits of up to 103,000 euros.

"We had to stop the panic and we did it," Berlusconi said.

"Britain, Denmark, the Netherlands and Belgium have nationalised (banks). We didn't need to."

Berlusconi hailed the European Central Bank's move on Wednesday to provide relief to euro zone banks struggling to raise cash -- by changes in liquidity mechanisms that accompanied a concerted cut in interest rates -- as a "fundamental policy change." (For a factbox on the measures, double click on [nL8596441]) (Additional reporting by Francesca Piscioneri; Writing by Stephen Brown; editing by Patrick Graham and Victoria Main)