Europe forced into bank rescues as crisis spreads

By Philip Blenkinsop and Reed Stevenson

BRUSSELS/AMSTERDAM (Reuters) - European governments scrambled to shore up banks on Monday, carving up firms and committing billions of euros as the credit crisis tore through Germany, Britain, Belgium and beyond.

The moves came as $700 billion bailout plan for U.S. financial firms faced a vote by the House of Representatives on Monday and Citigroup (C.N) said it would buy the bulk of fourth-largest U.S. bank, Wachovia Corp WB.N.

Lawmakers hope to unfreeze global markets gripped by the worst crisis since the Great Depression of the 1930s.

In the biggest European bank bailout since the credit crisis began, the Belgian, Dutch and Luxembourg governments took a 49 percent stake in Fortis (FOR.BR) (FOR.AS) with a 11.2 billion euro ($16.4 billion) injection.

The rescue of Fortis, the biggest private employer in Belgium, followed emergency talks with European Central Bank President Jean-Claude Trichet on Sunday. The bank employs 85,000 staff globally.

"The question was whether Fortis would have survived on Monday," Dutch Finance Minister Wouter Bos told reporters. The firm's chairman, Maurice Lippens, resigned.

The German government and a consortium of banks said they would provide 35 billion euros ($51.2 billion) in credit guarantees to lender Hypo Real Estate HRXG.DE, whose shares plunged more than 60 percent in morning trade.

"The purpose of the whole operation is to allow an orderly winding down of Hypo Real Estate," a German finance ministry spokesman said.

In Britain, the government was forced to buy up the 50 billion pounds of loans, mostly mortgages, held by Bradford & Bingley BB.L. The government brokered a takeover of lender HBOS HBOS.L earlier this month and nationalized Northern Rock in February.

B&B's 200 branches and deposit portfolio were bought up by Spain's Santander (SAN.MC) for some 400 million pounds.

Iceland was also forced into action as emergency measures to cope with the credit crisis spread across Europe, forcing the government to take a 75 percent stake in third-biggest bank Glitnir GLB.IC in a move that sent the Icelandic crown to a fresh record low against the euro.

World stock markets fell, with the MSCI main world equity index down 2 percent .MIWD00000PUS to its weakest in more than a week. In Europe, the FTSEurofirst 300 index .FTEU3 of top companies was down 3 percent while bank stocks shed 5.4 percent .SX7P.

U.S. futures indicated a sharply lower opening. Shares of Wachovia sank 60 percent in early electronic trading on concerns about its portfolio of illiquid assets and ahead of the Citi announcement.

Despite the European Central Bank injecting extra billions hoping to spur lending, banks continued to hoard cash but not lend, sending the interbank rate for borrowing euros for three months to a lifetime high.

The euro fell nearly 2 percent at one point while the dollar and safe-haven government bonds surged.