Global stock markets soared yesterday after the EU and IMF agreed a near one-trillion-dollar rescue package for the eurozone, stemming a crisis that threatened to derail the global economic recovery.
Many European markets posted record single-day gains, among them Spain, Portugal and Italy which investors last week left reeling amid concerns these countries could fall by the debt wayside like Greece.
The euro too rose very sharply early yesterday but by late afternoon the unit was slipping back as players took profits and waited to see if the eurozone nations would really stick by the currency's fiscal rules this time around.
Analysts said the deal buys the time to put public finances in order but eurozone states now have to deliver or it could unravel dangerously, threatening an even worse crisis that could plunge the global economy back into recession.
In London, the benchmark FTSE 100 index of leading shares jumped 5.16 per cent, in Paris the CAC 40 soared 9.66 per cent and in Frankfurt the DAX gained 5.30 per cent.
Milan was up 11.28 per cent, Madrid 14.43 per cent and Lisbon 10.73 per cent, all record daily gains.
Meanwhile in Greece, the epicentre for the debt and budget crisis which has brought the eurozone to its knees, stocks raced to gains of 9.13 per cent.
The interest rate earned on benchmark Greek 10-year bonds nearly halved on news of the deal, tumbling from punitive levels of above 12 per cent on Friday to 6.717 per cent late yesterday - still very high but a massive change for a market which usually moves in tiny, incremental steps.
On Wall Street, the blue-chip Dow Jones Industrial Average gained about four per cent by around 1600 GMT after turbulence last week that saw the index plummet almost 1,000 points or nine percent briefly on Thursday.
Dealers said the European Union and International Monetary Fund deal worth €750 billion agreed early yesterday to resolve the debt and budget deficit crisis in Europe provided a clear lead after months of uncertainty.
Following the announcement the US Federal Reserve, the European Central Bank and central banks in Japan, Britain, Canada and Switzerland said they would intervene to ensure there was plenty of liquidity on the money markets.
"Time will tell if this coordinated action is successful. For now, it is spurring a massive relief trade based on the notion that it might just be the answer," said Patrick O'Hare, analyst at Briefing.com.
"Anyway, while there is a sense of relief in the market about the monetary force being applied, there will be a fiscal price to pay for this bailout for those who need it," he cautioned.
Analysts at Charles Schwab & Co. said the rescue package on top of a €110 billion EU-IMF bailout for Greece eased eurozone debt contagion fears and preserved the outlook for the continuation of the global recovery.
"Equity markets certainly started the week with a flourish, although after an abysmal end to last week and the release of news regarding a robust bailout package ... it's hardly a surprise that the major indices have all posted sizable gains," said Anthony Grech, head of research at traders IG Index.
The euro rebounded above $1.30 in early trade from $1.2755 in New York late on Friday but slipped back steadily in the afternoon to €1.2861.
Dealers said the forex markets wanted to see what the follow up to the EU-IMF package would be, it being essential for the euro that governments stick to the eurozone's fiscal rules and get their debt and deficits back under control quickly.
Markets last week suffered huge sell-offs amid uncertainty over whether Greece could implement deeply unpopular austerity measures and stave off bankruptcy.
Fears that a possible debt default by Greece could hit the world's financial system in the same way the collapse of US investment banking giant Lehman Brothers did two years ago had sent shares and the euro plunging.
Concerns had also mounted that the Greek rescue deal would fail to shield Spain and Portugal from crippling market pressures, sending the euro down at one point to $1.2523 in New York, its lowest since March 2009.
Asian markets also hailed the EU deal, with Tokyo stocks closing up 1.60 per cent, Hong Kong jumping 2.54 per cent and Sydney rising 2.66 per cent.