LONDON, Sept 19 (Reuters) - European shares soared on Friday, led by recently battered insurers and banks boosted by a UK ban on short-selling financial stocks and hopes for a comprehensive U.S. government solution to bad banking assets.

By 0849 GMT, the FTSEurofirst 300 index of top European shares was up 6 percent at 1,127.58 points, recouping some of the sharp losses from earlier in the week. The benchmark is still down about 3.5 percent this week and has fallen 26 percent so far in 2008.

The UK Financial Services Authority imposed a temporary ban on short-selling financial stocks on Thursday and the top U.S. securities regulator was said to be weighing a similar measure in a bid to stabilise stock prices.

Shares in Royal Bank of Scotland, Barclays, Lloyds TSB in Britain all jumped more than 32 percent after the ban on short-selling.

Banks were the biggest weighted sectoral gainer on the index, with Dexia surging 19.8 percent, Credit Agricole advancing 19.5 percent, Fortis jumping 12 percent and BNP Paribas gaining 11.5 percent.

Anglo Irish soared 41 percent and Bank of Ireland jumped 34 percent. The DJ Stoxx Banks index was up 15 percent.

Markets across the globe spiked after a congressional aide said on Thursday that U.S. Treasury Secretary Henry Paulson had been shopping around a proposal to congressional lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system.

The idea has been compared to the Resolution Trust Corp formed in 1989 to fix the savings and loan industry collapse.

"At present, confidence is the most important factor, and this will only be maintained if the rescue plans are delivered on both sides of the Atlantic," said Andrew Turnbull, senior sales manager at ODL Securities.

Across Europe, Britain's FTSE rose 6.9 percent, Germany's DAX gained 4.3 percent, and France's CAC rose 6.1 percent.

"It is likely that we will see a volatile day as measures are brought in to restrict such short selling, and I would imagine that the quarterly options expiry could add further volatility to the situation," said Turnbull.

HSBC DROPS OFFER

Shares in HSBC rose 13 percent. The bank dropped a $6.3 billion offer for 51 percent of Korea Exchange Bank

added between 1.2 and 4 percent.

(Editing by Will Waterman) Keywords: MARKETS EUROPE STOCKS tf.TFN-Europe_newsdesk@thomsonreuters.com cmr

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