* EU, IMF agree $1 trilion crisis fund to fend off
contagion
* Euro jumps 1.7 pct, still faces uphill battle
* Asia stocks up 3.1 pct but eye Europe, U.S. market
reaction
* Big central banks offer liquidity support to ease strains
* Markets want more details on aid, long-term worries
remain
By Umesh Desai
HONG KONG, May 10 (Reuters) - The euro rebounded from
14-month lows and Asian stocks jumped on Monday after the
European Union and IMF carved out an emergency rescue package
of up to 750 billion euros ($1 trillion) to keep Greece's debt
crisis from spreading through the euro zone.
The size of the package and an unexpected pledge by the
European Central Bank to buy euro zone bonds if needed gave
investors some confidence to return to riskier assets such as
stocks, though questions remained about how the scheme would
work. []
Major global central banks moved swiftly to support Europe,
re-establishing dollar swap facilities used during the
2007-2008 financial crisis to help ease strains and ensure
there was enough liquidity to keep global credit markets from
seizing up again.
"These measures are a game changer in the near to medium
term," said Dariusz Kowalczyk, chief investment strategist for
SJS Markets, adding the aid package was big enough to deter
speculation in the short term about a Greek debt default.
Others agreed the move had at least bought Europe some time
as it tries to calm markets, but High Frequency Economics said
in a research note that the package was "still too vague to
understand".
The euro rose to as high as $1.2982 <EUR=> by
mid-afternoon, up around 1.7 percent and pulling away from a
14-month low of $1.2510 hit on trading platform EBS last week.
European and U.S. stocks were also seen opening higher.
Britain's FTSE 100 <>, Germany's DAX <> and
France's CAC 40 <> was seen up as much as 2.8 percent,
according to financial bookmakers. S&P futures <SPc1> rose
nearly 3 percent.
But gains in Asia were tempered by caution about how the
emergency package will be funded and concerns about longer term
structural problems in the euro zone.
The MSCI ex-Japan index <.MIAPJ0000PUS> rose 3.1 percent,
while Japan's Nikkei <> ended up 1.6 percent but off the
day's high.
The MSCI Asia ex-Japan index fell for five straight days
last week for a loss of 8.4 percent, wiping out its gains so
far this year and its highest percentage weekly loss since
November 2008.
"Investors now want to see how European and U.S. stocks
perform overnight. Caution also remains as reasons behind the
abnormal slide in U.S. stocks last week still haven't been
identified," said Kazuhiro Takahashi, general manager at Daiwa
Securities Capital Markets.
The Dow Jones Industrial Average <> suffered a so far
unexplained plunge of nearly 1,000 points at one point on
Thursday as Greece's debt problems intensified.
Though Wall Street later recouped most of the sharp losses,
with traders initially suspecting a technical glitch,
investors' nerves remain frayed by the extreme volatility in
recent days.
Kowalczyk said global risky assets -- equities,
commodities and emerging market assets -- would be boosted by
the latest EU support measures but added the euro will soon
slip again because of the liquidity boost provided by ECB.
The ECB surprised analysts by saying it will buy euro zone
government bonds to help support fractured markets, abandoning
its resistance to full-scale asset purchases. []
While some analysts had urged the central bank to push such
a financial "nuclear button" to defuse the escalating debt
crisis, others said buying bonds could be tantamount to
printing money to finance Greece's fiscal deficit.
[]
Before the European announcement, data from the Commodity
Futures Trading Commission showed euro sceptics' bets against
the common currency hit a record high in the week ending May 4.
[]
Financial markets have been punishing heavily indebted euro
zone members, threatening to plunge them into the same sort of
crisis as Greece, which could derail the global economic
recovery.
The new safety net was meant to protect other countries
with bloated budgets, such as Portugal, Spain and Ireland.
As jitters over euro zone finances battered global markets,
investors have dumped riskier assets for safer ones such as the
U.S. dollar, creating fears of dollar shortages in some
countries and driving up dollar funding costs.
"While the ECB's intervention (in bond markets) might
attract bad press regarding its mandate and independence, we
believe that this was necessary to short circuit the negative
feedback loop which was getting more and more threatening for
the global economy," the Royal Bank of Scotland said in a
research note.
"Sceptics will probably argue that this does not solve the
medium term debt overhang issues plaguing the periphery (other
weak euro zone countries). However they won't deny that this
will give them a chance to implement some fiscal consolidation
plans to restore market confidence in the sustainability of
public finances in the euro area."
Oil <CLc1> rose 3 percent to above $77 a barrel on hopes
that the EU deal will prevent broader damage to Europe's
economy which would have dampened energy demand.
Gold <XAU=> tumbled as much as 1.5 percent to $1,195.20 an
aounce, down from a near record-high of $1,213.35 hit Friday.
The U.S. dollar was firmer against the yen at 92.64 <JPY=>
and well off Friday's five-month lows of 88.00. It was down 1
percent against a basket of major world currencies <.DXY>.
U.S. Treasuries <0#USBMK=> were broadly weaker amid
optimism about the plan, adding to Friday's losses after the
U.S. Labor Dept reported larger-than-expected employment gains
in April, suggesting the economic recovery was well underway.
(Additional reporting by Aiko Hayashi and Koh Gui Qing;
Editing by Kim Coghill)
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