Royal Bank of Scotland reported the biggest loss in British history on Thursday and said the government's stake could rise as high as 95 percent after it stumped up billions to insure the bank's risky assets.

RBS also unveiled plans to cut 2.5 billion pounds ($3.56 billion) in costs as part of a restructuring plan which will see it exit or reduce its presence in 36 of the 54 countries it operates, which could see 20,000 job cuts.

The key building blocks for RBS's recovery are now in place, RBS chief executive Stephen Hester told reporters on a conference call.

That doesn't mean we will recover successfully, there's a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution.

Hester said the government's asset insurance scheme would give the bank the stability to carry out its restructuring plan.

RBS is placing 325 billion pounds of its assets in the government-funded scheme, gaining partial protection against future losses they incur.

RBS will be responsible for the first 19.5 billion pounds of any loss, and the bank said it was raising a further 13 billion pounds from the government in exchange for non-voting B shares to cover its obligation.

RBS shares were up 29 percent at 29.8 pence by 0955 GMT (4:55 a.m. EST), while the FTSE 100 share index was 1.6 percent higher.

The favorable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS, Panmure Gordon analyst Sandy Chen wrote in a note to clients.

For now, the markets will probably focus on the favorable terms of this bailout.

RBS' Hester said that while the government's voting rights would be capped at 75 percent, its economic stake in the bank could rise as high as 95 percent depending on the size of future losses against its insured assets.

The government currently holds a 70 percent stake in RBS after it provided the bank with an emergency capital injection of 20 billion pounds last October.

RBS said it made a 24.1 billion pound loss last year, the biggest deficit in British corporate history.

The loss, surpassing the 21.8 billion pound deficit reported by telecoms firm Vodafone in 2006, represents 16.2 billion pounds in write-downs against RBS' acquisitions, including its takeover of parts of ABN Amro in 2007, plus a further 7.9 billion pounds in operating losses.

Hester said the bank had not decided how many jobs would be lost, but said he did not dissent with speculation it could be as high as 20,000.

(Editing by Hans Peters)

($1=.7020 Pound)