Banks spur rebound in European stocks; focus on Fed meeting

(Reuters) - European shares rose nearly 1% on Tuesday, with banking stocks leading the recovery following a raft of measures to stabilise the sector, while investors hoped for less-aggressive moves by the U.S. Federal Reserve at its policy meeting this week.

The pan-European STOXX 600 index was up 0.9% by 0809 GMT, extending gains after the index sharply recouped intraday losses and closed the session up nearly 1% on Monday.

The Fed begins a two-day meeting later in the day and after a wild few sessions U.S. interest rate futures pricing implies that a peak in rates is either imminent or already reached, with newfound stability concerns to push inflation-fighting aside.

Europe's banking index jumped 1.8%, with shares in Swiss banks Credit Suisse trading flat and UBS gaining 3.5%.

Banking stocks globally breathed a sigh of relief on Monday after UBS's state-backed takeover of the 167-year-old Credit Suisse raised hopes that a wider banking crisis was averted in the near-term, although worries lingered about smaller U.S. banks and the damage to credit markets.

Europe's banking index is down more than 14% so far in March.

Shares of RWE rose 1.4% after Germany's biggest utility pledged a higher dividend and more investments to expand its core renewables business.

Thyssenkrupp climbed 3.3% after business daily Handelsblatt reported that the company's supervisory board is at odds over the right strategy for its steel business.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips)