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European shares rise on Lehman hopes, Bernanke eyed

FRANKFURT - European shares rose by midday on Friday, lifted by a rebound in financial stocks on the prospect that US investment bank Lehman Brothers might be bought, while oil eased below $120 a barrel.

Among individual movers, shares in TNT NV surged 8 percent after London's Times newspaper reported rumours that US rival United Parcel Service could make a bid as early as the weekend. TNT declined to comment.

By 1158 GMT, the pan-European FTSEurofirst 300 index was up 1.1 percent at 1,166.99 points, on track to end some 2 percent down on the week.

State-run Korea Development Bank said on Friday Lehman was one of its options for acquisitions, reviving expectations that the US investment bank might still bring in a large investor.

The news comes after a newspaper reported on Thursday that Lehman sought to sell up to a 50 percent stake to China's biggest brokerage, CITIC Securities, or Korea Development Bank. But the two Asian companies walked away after deciding the asking price was too high.

‘There is hope now that the financial crisis is not that bad after all and that we will all be rescued,’ a trader said.

Lehman shares traded in Frankfurt rose 20.4 percent and the DJ Stoxx banking index rose 2.5 percent after falling 6.3 percent in the past five sessions.

HSBC rose 1.9 percent, Royal Bank of Scotland gained 5.7 percent and Barclays rose 5.7 percent.

Insurance shares traded higher after Aon Corp, the world's largest insurance broker, made a recommended cash offer for Benfield valuing the UK-listed broker at 844 million pounds ($1.6 billion).

Benfield shares rallied almost 30 percent, while Axa rose 2.8 percent and Allianz rose 2 percent.

US stock futures jumped on comments from US investor Warrent Buffett that he has no bets against the dollar and that stocks were more attractive than they were a year ago.

Buffett, speaking on CNBC television, said the US economy was unlikely to improve before 2009, and that he expected the government to take action to support troubled mortgage financiers Fannie Mae and Freddie Mac.

Fannie and Freddie shares have plummeted as speculation grows about a government bailout of the companies, which own or guarantee almost half of US mortgages. Shares of both have fallen more than 90 percent in the last twelve months.

Referring to the problems at the two US mortgage financers, Tammo Greetfeld, equity strategist at UniCredit in Munich, said: ‘Rescuing the bank does not mean rescuing the shareholder.’

He said: ‘The US government offered a safety net for Fannie Mae and Freddie Mac, but not a solution to the core problems. That's why it was clear from the start that the crisis would not be over by implementing a rescue package.’

Later in the day, investors are likely to focus on what US Federal Reserve Chairman Ben Bernanke has to say about the credit market and the financial sector in a speech at 1400 GMT.

Around Europe, the UK's FTSE 100 index was up 1.6 percent, Germany's DAX index rose 1.2 percent and France's CAC 40 added 1.3 percent.

Oil eased below $120 a barrel, a day after its biggest jump in three months as part of a wider commodities rally spurred by a slump in the US dollar, and tension between the United States and Russia.

Declines in Total and BP were among the strongest negative weights on the pan-European index.

Elsewhere, mining giant Rio Tinto shares shrugged off early losses after Australia's antitrust regulator said the $128 billion bid from rival BHP Billiton could raise competition issues in iron ore.

Rio Tinto shares were up 0.6 percent, while BHP added 1.6 percent.