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Euro, stocks react favorably to $1 trillion rescue deal

BRUSSELS — The European Union put up a staggering $1 trillion Monday to contain its spreading government debt crisis and keep it from tearing the euro currency apart and derailing the global economic recovery.

Analysts said the huge sum supplied the "shock and awe" markets had been waiting for for weeks, and the euro and stocks around the world soared on the news.

The euro immediately shot back to life and up to $1.30, recovering from Friday's 14-month low of $1.2523.

Stocks, too, basked in the glow. France's CAC-40 stood out in Europe, surging 285.08 points, or 8.4 percent, to 3,677.67. Athens' main index was up nearly 10 percent and Lisbon's PSI 20 jumped 9 percent too. Japan's Nikkei 225 stock average rose 1.5 percent, and Hong Kong's Hang Seng index added 1.3 percent.

In the United States, the Dow Jones Industrial Average rose about 405 points to its biggest advance since March 2009. Broader U.S. indexes outpaced the Dow's 3.9 percent rise.

European leaders negotiated into the early hours of Monday before reaching a deal in which governments that use the euro would join the EU and International Monetary Fund in putting up $1 trillion in loans available to prop up troubled governments.

"We shall defend the euro, whatever it takes," EU Commissioner Olli Rehn said after an 11-hour meeting of EU finance ministers that capped a hectic week of chaotic sparring between panicked governments and aggressive markets.

The European Central bank will buy government and private debt to keep debt markets working and lower borrowing costs, a crisis measure dubbed the "nuclear option," while the U.S. Federal Reserve joined with other central banks in the effort, reactivating a currency swap program used during the earlier stages of the financial crisis to ship dollars overseas to be pumped into banking systems as short-term credit.

Officials acted after ominous slides in world stocks and the euro last week that raised fears that the debt crisis would spread from heavily indebted Greece to other financially weak countries such as Spain and Portugal.

Analysts said the measures had put out the fire for now by eliminating fears that governments would lack funds to pay off their debts. But several raised long-term worries about spreading debt of budget sinners to more responsible governments, and pointed to the lack of tough rules to keep debt from piling up again.

Euro, stocks react favorably to $1 trillion rescue deal 05/10/10 [Last modified: Monday, May 10, 2010 8:12pm]

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