London  - Banking shares led a strong rally on European markets Monday, following the announcement that the United States government would bail out the embattled mortgage lenders Fannie Mae and Freddie Mac.

In London, Halifax Bank of Scotland (HBOS) was the strongest performer, gaining 13 per cent to 310.25 pence, followed by a rise of 26.25 cents for Royal Bank of Scotland and 37.5 cents for Barclays.

In Frankfurt the DAX index of the 30 top German shares clawed back much of last week's losses, with banking stocks leading the way.

Deutsche Bank was up 8 per cent to above 61 euros (87 dollars). All 30 shares benefited from the positive sentiment.

Over the course of last week, the DAX fell 4.6 per cent to 6,127. By mid-morning Monday, the index stood at 6,336, a gain of 3.4 per cent.

The French stock market reacted with a vigorous rebound, the benchmark CAC 40 rising 4.6 per cent to 4,391.53, making good a large chunk of its loss from last week when French shares lost more than 6 per cent of their value, the biggest loss of the year.

Nordic stock markets surged, with Swedbank and Skandinaviska Enskilda Banken (SEB) up some 10 per cent in Stockholm where the OMX Stockholm 30 Index gained
4.1 per cent by mid-morning.

In Denmark, the OMX Copenhagen index gained 3.7 per cent while in Finland the Helsinki OMX index of 25 main stocks was up 3.3 per cent.

On the Vienna stock exchange, the main ATX index jumped on the news, rising 4.5 per cent after one hour.

The index was pushed by Erste Group Bank AG, which gained 9.5 per cent, and Raiffeisen International Bank-Holding AG, which gained 8.1 per cent.

In Amsterdam, the AEX leading share index rose 3.9 per cent, with financial stocks gaining most.

Belgian-Dutch bank and insurance company Fortis rose 8.7 per cent, while insurer Aegon, ING Bank and employment agency Randstad all saw rises above 7 per cent.

Dutch-British food company Unilever was the only one to drop, down by 0.10 per cent.

Fortis economist Joost van Leenders expressed caution, saying it was "highly uncertain" whether the US decision would have a long-term effect on the credit market.

Rob Koenders of Harmony Vermogensbeheer disagreed, saying the intervention might mark the turning point in credit crisis that began just over a year ago.

In Madrid, the Ibex index rose 3.2 per cent, with banks were in the forefront. Bankinter gained 5.1 per cent, Banesto 4.7 per cent, Santander 4.1 per cent and Sabadell 1.8 per cent.

The fastest rise was registered by the construction group Ferrovial, which went up 6.3 per cent. (dpa)