First-quarter results from two more European banks showed bad debts soaring in the face of tough economies, as U.S. rivals prepared to raise $75 billion to provide a cushion for the deepest recession in decades.

U.S. regulators told their top 10 banks late on Thursday to raise a total of $74.6 billion, which was less than investors once feared and helped lift European and U.S. bank shares early on Friday.

Yet top European banks continue to show the impact of the looming recession as companies and consumers are increasingly running into trouble.

Royal Bank of Scotland now 70 percent state-owned, fell to a slim January-March loss after bad debts quadrupled to 2.9 billion and it took a 2.1 billion pound writedown on risky assets.

We expect credit conditions to continue to deteriorate over the next few quarters consistent with these trends and that there will be a slowdown in financial market activity compared with the very buoyant conditions seen in Q1, Chief Executive Stephen Hester said.

He said bad debts this year will be at least four times the Q1 level, so over 11.4 billion pounds, more than 50 percent above last year's level.

Meanwhile Germany's Commerzbank made an 861 million euro ($1.2 billion) loss in the quarter, after a 1.2 billion euro charge from the investment bank and a 54 million euro charge from its commercial real estate unit.

The Frankfurt-based bank which has been hit by writedowns on debt products related to the U.S. residential mortgage market unveiled bullish targets as part of a planned overhaul, which included a reshuffle of its board.

The DJ Stoxx Banking sector <.SX7P> rose 2.2 percent to 182.2 points, and the index has now doubled in two months.

By 0840 GMT RBS's shares were up 10 percent as investors said there were no nasty shocks, while Commerzbank added 0.5 percent.


Several of the U.S. banks that were told to raise capital responded quickly with plans to do so.

Bank of America , which accounted for almost half of the total capital shortfall with $33.9 billion to be raised, said it planned to sell assets, issue $17 billion in common stock, and take other steps to fill the hole.

BofA's Frankfurt-listed shares jumped 15 percent. The Frankfurt listed shares of Citigroup rose 13 percent and Wells Fargo added 1.5 percent.

It was clear that the U.S. banks had a shortage of common equity. That has been increasingly corrected in recent months with some more to go, as has been revealed, said RBS's Hester, whose bank owns Citizens, one of the biggest U.S. lenders.

We're moving from a period of massive uncertainty to less uncertainty. That's not to say it's positive, there's still gloom to deal with for some time, but all of us feel more cheerful when we know what we have to deal with, he told reporters on a conference call.

The relatively modest size of the hole discovered by regulators carrying out the tests, which were based on an adverse economic scenario, led to both applause from investors who believe the worst is over and skepticism among those who think the examination wasn't rigorous enough.

Wells Fargo was found to need $13.7 billion and Citigroup was told it needed $5.5 billion.

(Additional reporting by Karey Wutkowski and David Lawder in Washington; Writing by Dan Lalor; Editing by Greg Mahlich)

($1=0.6666 pounds)