Europe and others bolster banks to fight crisis

By Tamora Vidaillet and Huw Jones

PARIS (Reuters) - Nations from Europe to Australia rushed out plans on Sunday to shore up their banks, trying to halt a markets crash with pledges to back lending, buy stakes in financial institutions and take other emergency steps.

European leaders meeting in Paris said their line of attack would help halt the chaos that has frozen credit markets, the lifeblood of the financial system, redrawn the world's financial industry and threatened a global recession.

"I believe that we will see over the coming few days worldwide action that will make people see that confidence in the banking system can be restored," British Prime Minister Gordon Brown told reporters.

In Washington, the United States worked on ways to buy stakes in struggling banks and other financial firms, something unthinkable until recently for the world's largest economy.

The U.S. Standard & Poor's 500 index plunged more than 18 percent last week, its worst-ever weekly fall. European stocks fell 22 percent and Tokyo's Nikkei crashed 24 percent.

Markets gave an initial cheer to the moves to check the slump, with U.S. stock index futures rising more than 3 percent on Sunday evening, a sign the market could open up on Monday.

New Zealand's dollar was stronger. German stocks rose 5 percent in off-exchange trading with big jumps in bank stocks.

"They're stepping up to the plate with all their fire power. It is literally a financial, economic call to arms," said Peter Kenny, managing director of Knight Equity Markets in Jersey City, New Jersey.

"It is not going to be overnight but it is going to help a lot. It is going to take the edge of panic off market psychology," he said.

The plan backed by prime ministers and presidents from the 15 countries that share the euro currency included state guarantees for new medium-term bank debt and state injections of capital into banks, adding to help from the ECB to unfreeze commercial paper markets, which would provide companies with vital access to funding and help stave off an economic slump.

"The steps taken in Europe are very positive. European governments in the last 72 hours got religion and realized they have a serious problem to address," billionaire investor George Soros told reporters.

"NO GIFT TO BANKS"

Details of how governments would buy stakes in banks are due to emerge during the week, starting with France, Germany and Italy on Monday.

"This is not a gift to banks but to help them function," French President Nicolas Sarkozy said, mindful of the public opinion backlash in the United States when Washington pushed through a $700 billion taxpayer-funded rescue plan for U.S. banks stuck with unsellable debt tied to the housing slump.

Portugal said it will offer a financing line worth 20 billion euros ($27.45 billion) to guarantee the liquidity of its banks.