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European stocks jump by midday, recouping some of the previous session's sharp losses on hopes that the U.S. Federal Reserve will deliver a big interest rate cut and the global credit crisis will ease. European stocks jumped by midday on Tuesday (March 18), recouping some of the previous session's sharp losses on hopes that the U.S. Federal Reserve would deliver a big interest rate cut and the global credit crisis would ease. Better-than-feared quarterly results from Wall Street firms Goldman Sachs Group Inc and Lehman Brothers Holdings Inc also helped soothe investors' worries over the impact of the crisis on banks' books. Recently hammered banking stocks led the rebound, with UBS up 10 percent, Credit Agricole up 7.1 percent and Deutsche Bank up 4.4 percent. By 1234 GMT, the FTSEurofirst 300 index of top European shares was up 4 percent at 1,228.34 points. The euro pared some of its gains versus the U.S. currency and last traded 0.3 percent higher at $1.5768, after gaining to as much as $1.5832 The index sank 4.4 percent on Monday after the fire sale of struggling Wall Street firm Bear Stearns raised concerns about valuations in the banking sector and sparked fresh nervousness over the credit crisis. Financial markets show investors expect the Fed to deliver one of the steepest interest rate cuts since 1982 after the European market close on Tuesday, after unveiling a series of measures aimed at improving banks' access to liquidity on the money markets to unclog the financial system. The Fed's policy-setting Federal Open Market Committee began deliberations at 8:30 a.m. (1230 GMT), according to a Fed spokesperson, and was expected to announce a decision at around 2:15 p.m. (1815 GMT). But, one German trader, says he believes it will only be the U.S. banks which benefit from any cut and won't be of great help to the economy. "The cut in interest rates actually only helps the U.S. banks, because they don't pass it down to their credit users who continue to pay high interest rates, high risk charges. The range of interest rates increases for the banks this way, they earn a bit of money and can start to get back on track, but for the economy it doesn't do much," Dirk Mueller, a trader for IFC, told Reuters on Tuesday. The U.S. central bank has lowered its trend-setting federal funds rate by 2.25 percentage points to 3 percent since mid-September as a soaring rate of home mortgage defaults spiraled into a full-blown credit crisis that claimed Wall Street investment bank Bear Stearns as a victim last weekend. Treasury Secretary Henry Paulson, on NBC's Today show early on Tuesday morning, acknowledged the U.S. economy was in "a sharp downclimb" -- his strongest language to date to describe the economy's weakness -- but he avoided labeling it an outright recession. But, Henk Potts, an equities strategist for Barclays Wealth, says the long term outloook is more positive with a possible recovery in the second half of the year. "We would suggest the picture long term looks so much brighter than the negative headlines, the disheartening numbers on the screen that you are seeing at the moment might suggest and we think investor confidence should start to bounce back on signs that a recovery could happen in the second half of the year," Potts said. Despite the problem of inflation, the European Central Bank is coming under increasing pressure to cut interest rates. "I think the ECB is coming under pressure to cut interest rates. Obviously they'll need to see predictions in terms of inflation slowing down before they'll feel they'll be able to do that. We anctipate that the ECB will start cutting interest rates slowly in the second half of this year, probably taking rates down to 3.5 percent, moving in the right direction in terms of what the market is hoping for but nowhere near as aggressive as we've seen from the United States," Potts said. Britain's FTSE 100 index surged 2.6 percent by midday on Tuesday as hopes of the chunky U.S. rate cut lifted shares and helped banks rebound from steep falls on Monday after the Bear Stearns firesale. At 1202 GMT, the blue-chip index was 142.8 points higher at 5,557.2 after the FTSE 100 hit its lowest closing level since late 2005 on Monday. Overnight, the Dow Jones industrials index rose after JPMorgan Chase & Co's deal to buy struggling brokerage Bear Stearns at a rock bottom price for $2 per share. UK banking and financials benefited most from the positive sentiment, accounting for over 42 index points. Among individual stocks, Barclays, HSBC and HBOS added between 3.8 and 5.6 percent. But investors have one eye firmly on the U.S. Federal Reserve and the expected to deliver one of the steepest interest rate cuts since 1982 after the market close in an attempt to boost turbulent credit markets.