LONDON Jan 13 (Reuters) - Deutsche Bank and Barclays led a rally by European bank stocks on Monday to their highest level for almost three years after regulators watered down new rules on leverage that aim to rein in risky balance sheets.
Sunday's decision by the world's top central bankers was aimed at trying to avoid crimping financing for the world's economy, and was seen as a positive for banks, especially those with big investment banking arms.
The STOXX Europe 600 Banking index was up 1.1 percent at 204.6 points by 0820 GMT, after hitting 205.2, its highest level since April 2011.
Shares in Deutsche Bank, Barclays and UBS were each up 2 percent.
"The significant regulatory forbearance - via reduction of Basel leverage exposure - should go some way towards alleviating concerns on the leverage ratio, notably at Barclays and Deutsche Bank," Kinner Lakhani, analyst at Citi, said in a note.
The easing of the rule is the latest sign of how regulators have become more willing to accommodate banks as the focus switches to helping economies recover.
The leverage ratio rules, due to come in from 2018, act as a backstop to a lender's core risk-weighted capital requirements. A ratio of 3 percent means a bank must hold capital equivalent to 3 percent of its total assets. (Reporting by Huw Jones and Steve Slater; Editing by Louise Heavens)