UPDATE 1-European bank shares rise on Basel timeline reports

* New Basel guidelines to have long phase-in period -sources

* Would ease fears about new, huge capital raises for banks

* Reports boost Asian shares, underpinning European stocks (Adds background on Basel rules, Asian shares)

By Ben Berkowitz

AMSTERDAM, Dec 16 (Reuters) - Shares in European banks rose sharply on Wednesday after sources said regulators planned a long grace period on new capital rules, possibly saving banks from having to raise big amounts of money in a short timeframe.

Three sources told Reuters on Wednesday that regulators would start to implement the "Basel III" rules in 2012 but would give banks a grace period to implement them and help them adjust. [ID:nTOE5BF01O]

There had been fears that if banks had to implement the new rules immediately, perhaps in as little as a year after finalisation, that they would have to raise substantial capital in the short term.

"A delay in stricter banking regulations eases concerns that banks will need to raise capital. A long time frame enables banks to meet higher capital requirements through retained earnings. Therefore, the banks do not have to issue new capital to meet regulation which is positive," said DZ Bank analyst Matthias Duerr in a research note.

For graphic on the capital strength of world banks, click on

here

Earlier the report gave a sharp boost to shares of Japanese banks. Both Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group (8316.T) gained more than 14 percent. Goldman Sachs had estimated the two banks could have to raise a combined $30 billion to meet the new rules.

Traders said the strong gains in Asia were also helping to support their European counterparts.

The DJ STOXX European banks index .SX7P rose 1.5 percent by 1002 GMT, topping sectoral gainers in the region and outpacing a 0.8-percent gain in the broader market .STOXX.

Deutsche Bank (DBKGn.DE) jumped 4.4 percent and Commerzbank (CBKG.DE) climbed 5.4 percent, while British banks RBS (RBS.L) and Barclays (BARC.L) rose 1 and 2.7 percent and Italy's UniCredit (CRDI.MI) gained 2 percent.

Others moving sharply higher included KBC (KBC.BR) up 3.1 percent, Natixis (CNAT.PA) up 1.5 percent and Mediobanca (MDBI.MI) up 2.7 percent.

RULES DUE IN JANUARY

The Basel Committee on Banking Supervision, which is made up of central bankers and regulators from nearly 30 countries, is putting together a package of stricter financial regulations in response to the credit crisis.

The committee is expected to publish a draft of its reforms by the end of January. Expected changes include raising the minimum capital ratio for global banks, requiring to them to increase their buffers for future losses. [ID:nGEE5AT15H]

Analysts said if there is to be a grace period, it is likely to be about 10 years, the same as for the Basel II changes, which were introduced in 2004.

Standard & Poor's, in a report last month, found capital to be a major source of ratings weakness for banks. It said large international banks had risk-adjusted capital ratios more than 300 basis points below their average Tier 1 capital ratios.

Policymakers have said the Basel II rules did not do enough to force banks to hold adequate capital to deal with shocks like the credit crunch. The new Basel III rules are expected to address that and other regulatory gaps. (Reporting by Ben Berkowitz; Additional reporting by Christoph Steitz in Frankfurt and Noriyuki Hirata and Taiga Uranaka in Tokyo; Editing by Dan Lalor and Sitaraman Shankar)