European shares rebound on Ambac bailout hopes

By Ana Nicolaci da Costa

LONDON, March 5 (Reuters) - European shares rose early on Wednesday, with a report that a bail-out for U.S. bond insurer Ambac Financial Group (ABK.N) was near helping shares bounce back after five days of losses.

Hopes for a prompt rescue package for Ambac made banks the top-performing sector in morning trade, led by gains in HSBC (HSBA.L), HBOS HBOS.L and UniCredit (CRDI.MI), which rose between 2 and 3.6 percent.

At 0946 GMT, the FTSEurofirst300 index .FTEU3 was up 0.6 percent at 1,287.73 points, with banks leading the way after being hit on Tuesday on concerns over possible trading losses.

Credit Agricole (CAGR.PA), France's biggest retail bank, posted a fourth-quarter loss as it booked large writedowns due to the credit crunch but said it was not planning any major acquisitions -- which traders said was helping the stock rise 2.9 percent.

Shares in Swiss bank UBS (UBSN.VX) -- the biggest victim of the credit crisis among major European banks -- also rose 1.4 percent on market talk that the bank had offloaded Alt-A mortgages to Pimco, a unit of Allianz (ALVG.DE), traders said.

UBS declined to comment on the talk, while Pimco would not confirm the speculation.

The bank sector has fallen by about 20 percent this year and contributed in large part to the 15 percent fall in the broader European equities market.

"Market sentiment generally is clearly still very fragile. Quite a few stocks hit new lows yesterday and on Monday, so I think we will probably see some sort of relief rally in the markets before too long," said Darren Winder, head of macro and strategy research at Cazenove.

"The recovery packages that are being put forward in the U.S. (are) clearly helping the situation, but people are still fearful of the sheer scale of the potential writedowns that could be out there."

CNBC television reported on Tuesday that a deal to rescue Ambac was near, helping the broader U.S. stock market cut losses during its last trading hour.

BRITAIN UNDERPERFORMS

Around Europe, Germany's DAX .GDAXI was up 0.8 percent, France's CAC 40 .FCHI gained 0.5 percent and Britain's FTSE 100 index .FTSE underperformed with gains of only 0.2 percent, or 8.1 points.

Several UK companies were lower as they traded without entitlement to the next dividend payment, taking a total 30 points off the index. These included banks Barclays (BARC.L), Royal Bank of Scotland (RBS.L), Lloyds TSB (LLOY.L) and oil major Royal Dutch Shell (RDSa.L).

The financial sector has borne the brunt of data showing the U.S. economy is slowing and investors' concerns that there is more pain to come from the ongoing credit crisis that originated in U.S. subprime mortgage defaults.

But the Ambac report and upbeat results from France also helped the broader financial sector on Wednesday.

The biggest percentage gainer was French insurer CNP Assurances (CNPP.PA), which posted higher 2007 profits late on Tuesday and said it expected further growth in 2008, despite a possible decline in its core domestic market. The stock was up 4.7 percent.

British insurer Prudential (PRU.L) was up 4.3 percent ahead of the results of a vote on an equity raising by Ping An Insurance (601318.SS), which could allow the Chinese giant to take stakes in European counterparts. (Reporting by Ana Nicolaci da Costa, editing by Will Waterman)