Shares in struggling giant France Telecom have surged by more than 16%, after the firm pleased investors with a generous state bail-out.

France Telecom chairman Thierry Breton proposed a rescue plan for the company on Wednesday, including 9bn euros (�5.7bn; $9bn) of government cash and sweeping cost cuts.

The plan, Mr Breton hopes, could reduce France Telecom's 70bn-euro debt mountain by 15bn euros within the next three years, and may revive its sagging share price.

Financial markets seem to have shared his optimism, especially in view of comments from rating agency Fitch that the plan could see the firm regain its top-grade credit rating.

Helping hand

The finance ministry said the refinancing strategy was "ambitious and realistic", describing it as "a cornerstone in the recovery of the company."

Unions fear a wave of job cuts

The government loan, which is to be repaid at market rates, will be advanced by a state holding company, ERAP - mainly as a way to bypass EU laws banning direct state subsidy.

To counter accusations of favouritism, the government also said it may start to shed its 55% controlling stake in France Telecom.

The plan nonetheless requires the approval of EU state aid authorities before it can proceed.

Tough decisions

In the meantime, France Telecom is likely to go through hard times.

The firm will probably lose up to 20bn euros this year, Mr Breton confirmed.

Mr Breton still sees tough times ahead

At the same time, France Telecom is almost certain to cut thousands of jobs - trade unions say 20,000 of its 140,000 staff could go.

Also on Thursday, its majority-owned mobile unit, Orange, announced plans to shed up to 2,000 jobs in an attempt to accelerate its profits.

Any cull at France Telecom proper would be highly controversial, since the majority of the firm's workers are officially civil servants, and so given considerable protected from dismissal.

Trade union groups, which met Mr Breton on Tuesday, said the firm had no plans to sell off subsidiaries such as mobile operator Orange or internet service provider Wanadoo.