LONDON, May 10 (Reuters) - The premiums investors demand to buy peripheral euro zone government bonds rather than German benchmarks fell on Monday as safe-haven demand fell after the agreement of a $1 trillion rescue package to shore up confidence in European markets.

Global policymakers agreed an emergency rescue package worth about $1 trillion to stabilise world financial markets and prevent a sovereign debt crisis spreading through the euro zone. [ID:nLDE64900T]

The Greek/German 10-year bond yield spread narrowed sharply to 786 basis points versus an indicative 1,047 basis point at Friday's settlement close. Liquidity in Greek bonds had dried out last week with no trades going through.

Equivalent Portuguese and Spanish spreads also narrowed off euro lifetime highs reached last week.

Bund futures FGBLc1 were down 177 ticks at 125.22 as investors unwound recent safe-haven flows into German debt.

The difference in yields on German and French 10-year bonds fell by 6 basis points to 30 bps.

(Reporting by London markets team)