Oct. 14 (Bloomberg) -- European stocks climbed, sending the Dow Jones Stoxx 600 Index to its biggest two-day gain on record, as the U.S. planned to inject $250 billion in banks and urged the lenders to use the funds to spur economic growth.

Deutsche Bank AG, Germany's biggest bank, and Barclays Plc, the U.K.'s second-biggest bank, rallied more than 10 percent. Societe Generale SA rose 8.2 percent after posting a profit, saying it doesn't need more capital.

The Stoxx 600 added 3 percent to 232.21, bringing its two- day advance to 13 percent, the most since records began in 1987. The U.S. investment in banks came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.

``The turning point was the bank bailouts,'' said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``Even though it's going to take time before credit markets are back to normal, we now have better clarity on default risks.''

National benchmark indexes advanced in all 18 western European markets except Belgium, Iceland and the Netherlands. The U.K.'s FTSE 100 climbed 3.2 percent as BP Plc and Royal Dutch Shell Plc gained. France's CAC 40 jumped 2.8 percent, led by Total SA. Germany's DAX rallied 2.7 percent.

Fortis sank more than 70 percent, dragging Belgium's BEL20 and the Netherland's AEX lower.

Iceland's benchmark stock index plunged 77 percent in the first day of trading after a three-day suspension following the collapse of the country's banking industry.

Money-Market Rates Fall

Money-market rates fell in London with the cost of borrowing in dollars for three months dropping the most since March. The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans slid 12 basis points to 4.64 percent, according to the British Bankers' Association. It was at 4.82 percent on Oct. 10, the highest level since December.

Yields on the highest-rated U.S. commercial paper due in one day fell 11 basis points to 1.72 percent today, the lowest level in more than two weeks, according to data compiled by Bloomberg.

``We are now seeing solvency being dealt with, we are seeing huge amounts of liquidity being thrown at the market,'' Simon Ballard, a senior portfolio manager at Fortis Investments, said in a Bloomberg Television interview. ``Banks will little by little start to face one another in the interbank market.''

Deutsche Bank, Barclays

Deutsche Bank rallied 11 percent to 38.75 euros, while Barclays gained 14 percent to 246 pence. UBS AG, the European lender with the biggest losses from the credit crisis, added 12 percent to 21.4 francs.

The cost of protecting bank debt against default fell. In London, contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 6.5 basis points to 121.5, JPMorgan Chase & Co. prices show.

The VStoxx Index, which measures the cost of using options as insurance against declines in the Euro Stoxx 50, dropped 10 percent today to 60.31, the lowest in four days. The index almost doubled last week.

Societe Generale surged 8.2 percent to 53 euros. France's second-largest bank by market value said it will report ``positive'' net income for the third quarter. Leaving aside one- time items, profit stood at about 1 billion euros, the bank said.

Clawing Back Losses

The Stoxx 600 advanced 9.9 percent yesterday, clawing back more than a third of last week's 22 percent slump. The index has dropped 36 percent in 2008 as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets.

Financial firms have reported $636 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

With the equity purchases, Treasury Secretary Hank Paulson is using more than a third of the $700 billion in government support Congress gave him the authority to use on Oct. 3.

Paulson didn't identify the companies. People familiar with the plan said nine banks will get about $125 billion. They are Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., the people said.

``We must restore confidence in our financial system,'' Paulson said in a statement in Washington. ``The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.''

`Uncertainty Remains'

Fortis, the financial-services firm bailed out by three governments and BNP Paribas SA, plunged 78 percent to 1.205 euros in Brussels as the shares resumed trading. Fortis said it will receive 14.4 billion euros from the sale of its Dutch and Belgian insurance and banking businesses.

``Uncertainty remains about what Fortis insurance international ultimately is worth and about what value will eventually come out of the structured-products portfolio,'' said Albert Ploegh, an Amsterdam-based analyst at ING Groep NV, who rates Fortis a ``hold.''

Dexia SA, the world's largest lender to local governments, slid fell 16 percent to 5.287 euros on speculation Belgium may nationalize the bank.

``Dexia's chairman of the board and the chief executive officer formally deny any rumor of a nationalization of Dexia by the Belgian state,'' Benoit Gausseron, a Paris-based spokesman for the company, said by phone.

Belgium, France and Luxembourg last week agreed to provide a state guarantee for Dexia's borrowings.

``The rumor is about a nationalization by the Belgian state,'' said Christophe Ricetti, a Paris-based analyst at Natixis Securities who rates Dexia ``reduce.'' ``The recapitalization has not solved all of Dexia's problems.''

Investor Confidence

Concern the credit crisis will tip Europe into a recession helped push German investor confidence to near a record low. The ZEW Center for European Economic Research said its index of investor and analyst expectations slumped to minus 63 this month.

The Stoxx 600 was valued at 8.5 times earnings of companies in the index last week, the cheapest on record, and climbed to 9.4 times profit yesterday. The MSCI World Index traded at 11 times the earnings of its 1,730 companies on Oct. 10, the lowest on record, and closed yesterday at 12 times profit.

The S&P 500, the benchmark for American equities, ended last week valued at 17.2 times earnings, also the lowest in more than a year. Yesterday's rally pushed its price-to-earnings ratio to 19.2.

Energy shares gained the most among the 18 industry groups in the Stoxx 600 as oil added as much as 4.5 percent to $84.83 a barrel.

Total, Europe's biggest oil refiner, climbed 7.3 percent to 39.26 euros. BP, the region's second-largest oil company, jumped 6.8 percent to 446.75 pence. Shell, the biggest energy producer, added 5.6 percent to 1,496 pence.

Accor SA increased 12 percent to 35.60 euros. Europe's biggest hotel owner was raised to ``overweight'' from ``equal- weight'' at Morgan Stanley, which said the current share price offers a ``compelling entry point.''

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: October 14, 2008 12:17 EDT