Global equity markets staged a massive relief rally on Monday after officials agreed to a $1 trillion emergency rescue package to avert a festering sovereign debt crisis in Europe from engulfing the rest of the world.
The euro rose broadly after the European Union and the International Monetary Fund 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 price of oil and other commodities surged as the rescue deal stoked investors' appetite for riskier assets.
The surge in equities began in Asian markets after European and IMF officials announced the deal and then caught fire around the world as other markets opened. European shares rose at their fastest pace in more than 17 months, and in the United States the Dow industrials had their biggest intraday move since March 2009.
This could've been another situation like when Bear Stearns and Lehman Brothers failed, but the rescue plan shows how serious Europe is about preventing that, said Alan Lancz, president of Alan B. Lancz & Associates, an investment advisory firm, in Toledo, Ohio.
Banks ranked among the top beneficiaries as the rescue deal reduced fears of a possible default. The STOXX Europe 600 banking index <.SX7P> jumped 14 percent after a drop last week by the same magnitude.
On Wall Street, the S&P Financial index <.GSPF> climbed 5.6 percent and was the top gainer among S&P sectors.
A global measure of world equity performance gained almost 5 percent, with markets in Italy, Spain and Portugal climbing more than 10 percent. U.S. equity markets also jumped.
The euro rebounded from last week's 14-month low, while debt yields narrowed sharply against benchmarks. The interbank costs of borrowing euro and dollar funds fell for the first time since April.
The euro later retreated below $1.29 after initial euphoria that had lifted the single currency to near $1.31 faded a bit.
Policy makers have, at least for the time being, drawn a line under the liquidity concerns in Europe, said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. As a result, we've seen risk appetite return to the markets across different asset classes.
MSCI's all-country world equity index <.MIWD00000PUS> rose 4.8 percent, while its emerging market index <.MSCIEF> gained 4.5 percent.
The pan-European FTSEurofirst 300 <.FTEU3> closed up 7.4 percent at 1,038.91, the biggest one-day percentage gain since November 2008.
At 12:30 p.m., the Dow Jones industrial average <.DJI> was up 396.85 points, or 3.82 percent, at 10,777.28. The Standard & Poor's 500 Index <.SPX> was up 46.14 points, or 4.15 percent, at 1,157.02. The Nasdaq Composite Index <.IXIC> was up 100.05 points, or 4.42 percent, at 2,365.69.
The rescue package was on the scale of the $700 billion Troubled Asset Relief Program (TARP) launched by the United States to fend off the financial crisis of 2007-2009.
There were also measures by central banks to address funding strains and a European Central Bank plan to buy the region's government bonds.
A number of European central banks said they had already started.
The euro rallied from last week's 14-month low against the dollar. The single currency was up 1.4 percent at $1.2833, having fallen to $1.2510 on trading platform EBS last week.
The dollar was down against a basket of major currencies, with the U.S. Dollar Index <.DXY> off 0.43 percent at 84.084.
Against the yen, the dollar was up 1.97 percent at 93.36.
Spot gold fell to $1,183.85 in early trade as the package boosted risk appetite, while commodity prices such as crude oil and industrial metals rose.
U.S. light sweet crude oil rose $1.45 to $76.56 a barrel after earlier topping $77. ICE Brent crude for June rose $1.68 to $79.95.
Spot gold prices fell $9.85 to $1197.90 an ounce.
In bond markets, the premiums investors demand to buy peripheral euro zone government bonds rather than German benchmarks fell.
Greek bonds were the biggest gainers in the euro zone with the short-end outperforming, causing the 2/10-year yield curve to flatten sharply and briefly disinvert. [ID:nLDE6492F8]
Liquidity in Greek bonds dried up last week with no trades going through.
They've attacked this problem from all angles and it's given a big boost to risk markets at the expense of government bonds, said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.
The benchmark 10-year U.S. Treasury note was down 37/32 in price to yield 3.56 percent.
In Asia, Hong Kong shares had their biggest one-day rise in five months, the MSCI ex-Japan index <.MIAPJ0000PUS> rose 3.4 percent, and Japan's Nikkei <.N225> ended up 1.6 percent.
But concerns lingered whether the package can achieve long-term success as the root problems of dealing with mushrooming public deficits remain.
The headlines are all very impressive but the question marks are: 'Is it executable?' and 'How is it funded?' said Charles Diebel, head of European rates strategy at Nomura.
(Reporting by Ryan Vlastelica, Wanfeng Zhou, Burton Frierson in New York; Christopher Johnson, William James, Brian Gorman in London; Writing by Herbert Lash; Editing by Leslie Adler)