Banks lift Europe shares after US, Asia surge

LONDON, Oct 29 (Reuters) - European shares rose 4 percent early on Wednesday, after big rallies in U.S. and Asian stocks as investors bet the Federal Reserve would cut interest rates in an attempt to spur economic growth.

At 0815 GMT the pan-European FTSEurofirst 300 index was 4.1 percent at 868.84 points, rising for a second straight session after a five-day losing streak.

Wall Street marked its second-best day ever on Tuesday, with major U.S. stock indexes surging about 10 percent.

The U.S. Federal Reserve is set to announce its rate verdict at 1815 GMT. In a Reuters survey, primary dealers expect the Fed funds rate will be cut to 1 percent from 1.5 percent.

Japan could follow the United States in cutting interest rates this week, a source with knowledge on the matter said. Tokyo's Nikkei average .N225 soared 7.7 percent.

Banks led the European rally, with UBS (UBSN.VX: Quote, Profile, Research) rising more than 10 percent, Standard Chartered (STAN.L: Quote, Profile, Research) adding 12 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) up 10 percent.

BBVA (BBVA.MC: Quote, Profile, Research) rose 7.6 percent after saying nine-month recurrent net profit rose 9.1 pct to 4.321 billion euros from 3.962 billion, compared with 4.18 billion forecast in Reuters poll.

"Enjoy the party while you can," said David Buik, market commentator at Cantor Index in London, adding this was a bear squeeze rally after recent hefty market losses.

Volkswagen (VOWG.DE: Quote, Profile, Research), Europe's biggest faller, tumbled 37 percent on news Deutsche Boerse will cut the weighting of shares in the blue-chip German DAX index .GDAXI after a surge in the carmaker's shares that briefly made it the world's most valuable company