Stock futures point to rally on rescue hopes

PARIS (Reuters) - Stock index futures were sharply higher on Monday, pointing to a rally on Wall Street as a flurry of moves by governments to restore confidence in the global financial system spurred a rebound in stocks worldwide.

By 4:55 a.m. EDT, S&P 500 futures were up 6 percent, Dow Jones futures up 4.9 percent and Nasdaq 100 futures up 5.4 percent.

European shares jumped 6.3 percent after European governments agreed to provide capital for banks short of funds because of frozen money markets and to insure or buy into new debt issues.

A rescue package for Germany's financial sector includes a fund to provide up to 400 billion euros ($548.9 billion) in guarantees for banks, a draft bill seen by Reuters on Monday showed.

Three major British banks -- Royal Bank of Scotland , HBOS and Lloyds TSB -- could take 37 billion pounds ($64 billion) in government money to boost their capital, the UK Treasury said.

Adding to the positive mood, the world's top central banks on Monday announced further measures to improve liquidity in short-term U.S. dollar funding markets.

"Authorities are now tackling the systemic risks with heavy artillery, and that should do the job," said Yann Lepape, chief global macro strategist at Oddo Securities in Paris.

"But beyond that, we're still facing a recession in the real economy. So we may get a rebound in stocks on the short term, but chances are that indexes will revisit the recent lows sometimes in the next few quarters."

M&A news will also keep banking stocks in focus. Japan's Mitsubishi UFJ Financial Group <8306.T> is seeking more favorable terms to its $9 billion deal with Morgan Stanley after the U.S. bank's stock tumbled last week, a person briefed on the matter said.

The Japanese lender will still buy a 21 percent stake from Morgan Stanley for $9 billion, but will amend the terms to include only convertible preferred shares and no common stock, the source said.

Morgan Stanley shares traded in Frankfurt were up 67 percent, while Citigroup and Goldman Sachs were up 23-27 percent in Frankfurt.

The Federal Reserve on Sunday gave its stamp of approval to the takeover of Wachovia Corp by Wells Fargo & Co of San Francisco, which had battled Citigroup for ownership of the stricken bank.

Spain's Banco Santander is in advanced talks to buy full control of Sovereign Bancorp Inc in a deal valued at $2.5 billion, according to a source familiar with the matter.

Sovereign Bancorp shares in Frankfurt were up 13.5 percent.

The auto sector will also be in the spotlight. The Wall Street Journal said on Sunday the board of General Motors Corp gave a cool reception to the idea of acquiring Chrysler LLC after GM's top management discussed the matter at a meeting last week.

Chrysler's majority owner, Cerberus Capital Management , has been in talks with GM about swapping Chrysler's auto operations for GM's 49-percent stake in finance arm GMAC, sources briefed on the matter have told Reuters. Cerberus owns the other 51-percent in GMAC.

The idea of acquiring Chrysler was discussed at a formal GM board meeting last week, The Journal said on its website, citing people familiar with the matter.

GM has had preliminary talks with both Ford Motor Co and Chrysler LLC in recent months about the potential for mergers, people familiar with the talks have said, as the downturn in auto sales forces all three companies to rethink their businesses.

Separately, Ford is considering selling its stake in Japan's Mazda Motor Co <7261.T>, a source familiar with the matter said on Saturday.

Also on the M&A front, U.S. memory chip maker Micron Technology will pay $400 million in cash for Qimonda's 35.6 percent stake in Inotera, a joint venture between Qimonda and Taiwan's Nanya Technology <2408.TW>, Micron said.

The Dow and the S&P 500 fell for an eighth consecutive session on Friday, as a dramatic late-session comeback stalled out to cap the biggest ever weekly drop for the S&P on more fears over the credit crisis and the threat of a global recession.

Japanese markets were closed for a holiday on Monday.

(Editing by Erica Billingham)

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