* Euro up 1.6 pct vs dollar, off last week's 14-mth low
* EU package, c.bank FX swap lines lifting sentiment
* Unclear if package gives long-term support for euro
By Natsuko Waki
LONDON, May 10 (Reuters) - The euro rallied from last week's
14-month low against the dollar on Monday after European Union
leaders agreed on an emergency loan package to prevent Greek's
debt crisis from spreading through the region.
The package, which with IMF support may reach 750 billion
euros, along with measures by central banks to address funding
strains and a European Central Bank plan to buy the region's
government bonds, calmed nerves after contagion fears triggered
a global rout in equities and other risky assets last week.
However, uncertainty persisted over whether the package
would gove the euro lasting support since Greece and other
peripheral euro zone countries must tackle fiscal deficits when
their growth outlook is deteriorating.
"The package announced yesterday was supportive of euro
sentiment. There is some uncertainty lingering about the
mechanisms of the stabilisation funds, however. In particular,
it is still unclear where the money for the funds is going to
come from," said Valentin Marinov, currency strategist at
Societe Generale.
"In the case of Greece, very protracted economic recovery
could lead to more funding needs."
By 0730 GMT the euro was up 1.6 percent at $1.2964 <EUR=>,
having fallen to $1.2510 on trading platform EBS last week.
Mounting short positions on the euro prompted investors to
cover their positions, helping the single currency recover.
Latest data from CFTC showed currency speculators boosted
bets in favour of the dollar to a level strategists said was the
highest since the euro's launch in 1999 [].
The single currency was running into resistance at around
$1.30 and still down more than 9 percent since January, making
it the worst performing major currency.
The euro rose 3.2 percent to 120.52 yen <EURJPY=> after
hitting an eight-year low near 110.44 last week.
"The package will likely lead to stabilisation of markets in
the next day or so but the question further out is whether it
will lead to a sustained improvement in confidence," Credit
Agricole CIB said in a note to clients.
"The Greek crisis has gone to the heart of the euro project
and (the package) will be insufficient to turn confidence around
over the medium term. In order to have a lasting impact there
needs to be proof of budget consolidation as well as increasing
structural reforms."
The dollar fell 1.2 percent against a basket of major
currencies to 83.42 <.DXY>. The U.S. Federal Reserve reopened
currency swap facilities with other major central banks on
Sunday to ease market strains in Europe.
The Fed revived facilities established during the 2007-2008
financial crisis with the European Central Bank, and the central
banks of Canada, the UK and Switzerland.
POLITICAL STALEMATE
Sterling rose 0.3 percent to $1.4843 <GBP=D4> after concerns
about a political stalemate following an inconclusive UK pushed
it to a one-year low of $1.4475 on Friday.
Britain's opposition Conservatives and Liberal Democrats
will hold further talks on Monday to try to stitch together a
deal to govern with markets anxious about how the new government
will address precarious public finances. [].
"The longer political leaders dilly-dally about the
leadership then sterling will stay under pressure," said David
Scutt, a FX trader at Arab Australia Bank in Sydney.
The Bank of England is expected to leave interest rates at
0.5 percent and not to undertake further quantitative easing
purchases when it concludes its Monetary Policy Committee
meeting on Monday. []
