Banks lead Europe share rally after Buffett plan

By Amanda Cooper

LONDON, Feb 12 (Reuters) - Banks drove European stocks up by more than 3 percent on Tuesday after U.S. billionaire investor Warren Buffett offered to reinsure municipal bonds held by top bond insurers, soothing some of the most recent credit concerns.

HSBC (HSBA.L: Quote, Profile, Research) was the top positive influence on the broader market, rising 4.6 percent, while Santander (SAN.MC: Quote, Profile, Research) gained 3.8 percent and Barclays (BARC.L: Quote, Profile, Research) jumped 6.2 percent.

The FTSEurofirst 300 index of leading European shares ended 3.4 percent higher at 1,334.2 points, just shy of the day's high of 1,334.4, with gains stoked towards the close. The ratio of advancing issues to decliners was about 14 to one by the close of trading hours.

U.S. shares were also sharply higher.

Buffett told CNBC television the offer, which he extended to bond insurers MBIA (MBI.N: Quote, Profile, Research), Ambac (ABK.N: Quote, Profile, Research) and FGIC, would cover $800 billion in municipal bonds.

Shares in MBIA and Ambac have fallen in the last 12 months between 80 and 90 percent, battered by concern over their exposure to the subprime crisis.

Bond insurers guarantee more than $2.4 trillion in debt and have been struggling to hold on to their top credit ratings after suffering heavy losses from backing mortgage securities that have plunged in value.

"Basically that was driving the market higher today," said Fortis Bank strategist Philippe Gijsels in Brussels.