Europe shares rally on Fed-led liquidity pledge

By Ana Nicolaci da Costa

LONDON, March 11 (Reuters) - European stocks rallied on Tuesday, after the U.S. Federal Reserve said it and other major central banks would inject liquidity into cash-starved money markets, providing particular comfort to financial stocks.

In the latest effort to ease a credit contraction that has disrupted global finance, the Fed, Bank of Canada, Bank of England, European Central Bank and Swiss National Bank announced a series of aggressive measures to boost liquidity.

The measures boosted stocks in Europe by over 2.5 percent. But the FTSEurofirst 300 index closed up 1.2 percent at 1,269.46 points as U.S. indexes pared gains.

Financials were the best performers, having been especially comforted by the central banks' measures. The DJStoxx index of European banks was up 3.3 percent, its largest one-day rally in a month.

It is the second time in three months that central banks from around the globe have launched such coordinated efforts.

HSBC (HSBA.L: Quote, Profile, Research) was the biggest weighted gainer, up 2.7 percent, while Banco Santander (SAN.MC: Quote, Profile, Research) was up 3.3 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) jumped 4.5 percent.

But not all analysts were comforted by the move.

"The liquidity injection does not change anything in substance. It is no solution to the underlying problems of the credit crisis and it is comparable to the liquidity injections we saw at year-end 2007," said Tammo Greetfeld, equity strategist at UniCredit.