LONDON - European stock markets rallied on Monday as Britain unveiled a scheme to kick-start lending by ailing British banks that it hopes can be spread across the globe.
London's FTSE 100 index of leading shares jumped 1.78 percent to 4,220.83 points in late morning trade. Frankfurt's DAX 30 won 1.61 percent to 4,436.64 points and in Paris the CAC 30 gained 1.38 percent to reach 3,058.32 approaching the half-way stage.
The DJ Euro Stoxx 50 index of leading eurozone shares advanced 1.34 percent to 2,312.10 points.
The euro eased to 1.3229 dollars.
"The markets rallied, recovering some of the losses of last week after the (British) government announced the second banking bailout in three months," said City Index market strategist Joshua Raymond.
Britain on Monday unveiled an insurance scheme to protect banks from so-called toxic assets, in a second multi-billion pound rescue package seeking to boost lending by banks crippled by the credit crisis.
Britain's Labour government said it planned to launch The Asset Protection Scheme "designed to protect financial institutions against exposure to exceptional future credit losses on certain portfolios of assets."
The government added that it hoped to co-ordinate the scheme with other countries.
At the same time Royal Bank of Scotland, majority-owned by the taxpayer, said it expected an annual loss of up to 28 billion pounds -- which would be a record in British corporate history -- linked to the credit crisis and its part-takeover of Dutch lender ABN Amro in 2007.
The news sent the RBS share price tumbling 36 percent to stand at 22.10 pence in late morning London trade. However Barclays bank rose 4.69 percent to 102.30 pence after suffering sharp losses last Friday.
"What the bailout and recent results most certainly do are re-affirm the fact that the banks will be living on a cliff edge for some time to come," said Raymond.
"It takes guts to invest in banks right now when you are faced with the prospect of rising bad debts, further bailouts and increasing prospects of nationalisation just around the corner."
Earlier Monday, optimism on the eve of the inauguration of Barack Obama as president of the United States helped most of Asia's markets higher amid quiet trade ahead of Lunar New Year celebrations, traders said.
Tokyo added 0.32 percent as investors looked forward to a fresh pair of hands in the White House, while Hong Kong rose 0.6 percent.
Sydney was boosted by the resources sector to climb 1.1 percent.
Numerous markets across Asia will be closed for at least two days next week to mark Chinese New Year, leading many traders to hold back from buying too heavily.
Dealers were meanwhile upbeat over Obama's plans to help the world's biggest economy, which include a stimulus of more than 800-billion dollars. His room for manoeuvre was also increased after Congress agreed to give him the second 350 billion dollars of the bailout hammered out last year for ailing banks.
The news sent Wall Street 0.84 percent higher Friday. Wall Street is shut Monday for the Martin Luther King holiday.