European stock index futures rose on Thursday as riskier assets across the board and the euro rallied in Asia, after European leaders agreed to boost their region's rescue fund and have private bondholders accept a huge loss on their Greek debt.
Stock index futures for the Euro STOXX 50, Germany's DAX and the French CAC 40 were up 2.8 to 3 percent.
Spreads tightened in Asian credit markets while U.S. Treasuries extended losses in Asia, but gold continued to gain, reaching its highest point in more than a month as investors felt that progress in resolving the European sovereign debt crisis will remain slow.
Lack of details on how to deliver the broad rescue program meant there was still a long way before markets get any convincing answers to relieve their concerns over the Greek debt crisis spreading to other euro zone countries and damage to the broader economy.
MSCI's broadest index of Asia Pacific shares outside Japan rose 2.8 percent to a seven-week high, and nearly 20 percent above a low hit on October 4.
The Nikkei <.N225> shrugged off concerns about the yen's rise on Wednesday to a record high against the dollar of around 75.70 yen on Wednesday. The benchmark gained 2.0 percent on expectations euro zone debt problems would be contained. <.T>
While the headlines look good, the devil is in the details here, said Damien Boey, equity strategist at Credit Suisse in Sydney.
The problem is, we don't actually know how they are planning to increase the bail-out fund size ... On top of that, there are some questions as to whether one trillion euros in itself is enough.
Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.
They also agreed that the European Financial Stability Facility, a bailout fund set up last year, will be leveraged four or five times, giving it firepower equivalent to about 1 trillion euros ($1.4 trillion).
European policymakers also agreed to force banks to raise their capital buffers, by June next year, to 9 percent in core Tier 1 capital, a measure of banks' financial health, to protect against losses from any Greek debt restructuring. In previous stress tests, the banks had to have Tier 1 capital of 5 percent.
In another sign of progress to ease concerns about Greece's debt issues spreading, euro zone leaders welcomed Italy's plans to increase the pension age to 67 from 65 by 2026, but called for rapid implementation of pension reforms and other measures.
The blueprint is out, but it's coming in dribs and drabs and not as clear as we thought it will be, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney, adding that it also did not fully address the issues.
But it's still a step forward and each step keeps optimism intact. But the task ahead is too large to put a deadline on, and if there is a lag, the market will lose its optimism. If there are no concrete measures, it will draw down market prices.
NEXT FOCUS - FUNDAMENTALS
With the summit meeting providing some direction for key issues, the market will shift its focus to details for implementing measures while scrutinizing the impact of the euro zone debt crisis on the economy.
The markets will remain in a cycle of expectations and disappointments over the euro zone debt issues for some more time to come, as Europe's sovereign debt issue will take a long time to resolve and there are many more hurdles that need to be cleared, said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ.
Uncertainty over whether the European Central Bank could play a bigger role in resolving euro zone debt woes was one such question, he said.
The markets had priced in an extremely pessimistic scenario, so Thursday's outcome prompted covering of these positions.
The markets are now shifting their focus to how the debt crisis has affected the economy, Uchida said. Whether the market can consolidate in a range or enter a downtrend will depend on how they see risks from fundamentals.
If data from the euro zone, including on third-quarter growth data and figures gauging consumer spending around the year-end holiday seasons, suggests a marked slowdown in the regional economies, the downside risks will grow. Later in the session, U.S. third-quarter GDP will be released.
Commodities rose, with oil gaining more than $1 while gold extended its gains to its highest in over a month on Thursday, after rising 1.5 percent the previous session when it notched its longest stretch of gains in over two months.
Gold later trimmed most of earlier gains as risk appetite resumed and overshadowed the metal's safe-haven allure. But bullion remains underpinned by uncertainty over the euro zone crisis as well as strong physical demand when prices fall.
Most emerging Asian currencies rose, with the South Korean won hitting its highest in over five weeks on Thursday, as some speculators cleared dollar-long positions against Asian currencies after some progress to contain the euro zone's debt crisis boosted riskier assets broadly.
BET ON RISK RALLY
Technicals suggest the markets were providing good trading opportunities for both bulls and bears, encouraging investors to buy on dips when a risk rally eases.
The euro surged to a seven-week high to briefly touch $1.40. Having consolidated in a range of $1.3650-$1.3950 since mid-October, it was technically set to break out the range.
In Asian credit markets, weakening strains helped sharply narrow the spreads on the iTraxx Asia ex-Japan investment grade index, a gauge for whether investor risk appetite is returning, by 13 basis points on Thursday.
We could see this rally go further based on the technicals, as real money accounts are underweight and dealers are lightly positioned, but longer term it could be capped by issuance, said a Singapore-based credit trader with an Asian bank referring to the supply pressure built up after inactivity in the primary markets in over a month.
Investors' appetite eased for protection in the options market against losses, with the CBOE Volatility index VIX <.VIX> -- a 30-day risk forecast of volatility in the S&P 500 -- falling 29.86 on Wednesday from 32.22 the day before.
Since October 4, when the Standard & Poor's 500 Index <.SPX> slumped to intraday levels last seen in September 2010, the benchmark index has surged nearly 15 percent, mostly on hopes for a solution to the debt crisis.
While the S&P 500 Index has failed to clear a key technical level of a 61.8 percent retracement of the 2011 decline around 1,258, it has found a solid support around 1,221, suggesting a level investors could buy on dips.
With the rally in riskier assets, safe-haven U.S. Treasuries fell further in Asia, with yields on the benchmark 10-year notes rising to 2.25 percent from 2.21 percent late in New York on Wednesday.
The Bank of Japan on Thursday eased monetary policy by expanding asset purchases as the yen's strength and Europe's debt crisis cloud the outlook for the country's fragile economy, supporting two-year Japanese government bonds, a maturity which was included in the BOJ's increased purchases.
(Additional reporting Umesh Desai and Reuters FX analyst Krishna Kumar in Hong Kong; Editing by Richard Borsuk)