World stocks, commodities and the battered euro jumped on Monday after euro zone finance ministers agreed to lend Spain up to $125 billion to shore up its struggling banks, relieving markets that had feared a fiscal collapse in the country.
The relief may be short-lived though, as investors look forward to a Greek national election on June 17 that could put Athens on a path out of the bloc and precipitate a deeper crisis over the future of the euro.
The euro was on course for its biggest daily rally against the dollar in almost eight months after rising nearly 1% to $1.26694, its highest level since May 23, before retreating to trade at $1.2639.
European shares were set to soar, with spreadbetters predicting major European markets to open as much as 2.6% higher. US stock futures were up 1.2%.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.9%, on track for its biggest daily gain in almost 5 months, while Japan's Nikkei average added 2%, after sagging 2.1% on Friday.
"It was macroeconomics that lifted the markets this morning, as the EU stepped in to help Spain's banks," said Andy Du, director of the derivatives department at Orient Futures. "All eyes are still on Greece's upcoming elections but investors' worries over the euro zone has eased in the short term."
The Australian dollar, closely linked to risk appetite, gained as much as 0.9% to $1.0005, its highest rate since May 15, before falling back to $0.9982.
Brent and US crude futures both rose more than $2 and London copper futures pushed nearly 3% higher to $7,506 a tonne.
US Treasury bond futures tumbled in Asia, reflecting the switch out of so-called safe haven assets to riskier ones. The 30-year contract was off 1-7/32 at 148-2/32.
Bank rescue
The 17-nation euro currency area agreed to lend Madrid up to 100 billion euros for its bank rescue fund, more than an initial audit suggested it might need. No precise amount was set because Spain said it needed time for an independent assessment of the capital needs of its banking sector, which is due to be delivered in less than two weeks.
The rescue for Spain's banks follows bailouts for Greece, Ireland and Portugal since 2010, and comes a week before a crucial election in Greece that could determine whether Athens will stay with the euro bloc.
Analysts expect investors' appetite to buy stocks, commodities and other riskier assets to remain limited by the euro zone's broader problems. Its challenge of reducing high sovereign debts and pursuing fiscal austerity, while also achieving growth, will not be resolved anytime soon.
The European Union action is going to be a temporary success because the Spanish crisis is mostly centred around its banks, said Richard Hastings, macro and consumer strategist at Global Hunter Securities.
"The next phase of the Spain situation comes in six to nine more months when it becomes clear that Spain's economy has not improved, thus pointing to a wider realm of distress," Hastings said.
"That is indeed the primary concern for the entire European situation: that the relationship between banking, credit and growth remains fragmented and impaired."
Italy in focus
Analysts said Monday's market rebound was probably more to do with short covering than a return to full risk taking, especially in the euro, given the record positions that had built up betting on a decline in its value.
"Aid to Spanish banks suggests European policymakers want to prevent euro zone problems from causing further volatility in global financial markets and threatening the world economy, and this provides a sense of relief for investors," said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"But uncertainties remain with how funds are provided to Spanish banks, as well as the outcome of Greece's election and the situation in peripherals such as Italy. I see the recovery in currencies, especially the euro, largely as an unwinding of huge short positions," he said.
Hattori said the next key gauge for confidence was whether the spread between Italian government bond yields and those of Germany would exceed 500 basis points.
While the public financing situation in Spain and Italy is not as dire as that in the three smaller countries that have already sought international help, Italy may be wary of the banking crisis in Spain reigniting concerns about its huge public debts, he said.
The Spain-German spread - the premium investors demand for holding Spanish debt compared with super-safe German bonds -topped well above 500 basis points in recent weeks preceding Madrid's call for help to fund its debt-stricken banks.
The Italian Treasury will announce details of its bond auction later on Monday.
A rebound in the euro and the dollar's corresponding decline spurred buying of gold, with spot gold firming 0.3% to $1,598.81 an ounce.
Surprisingly strong China trade data released over the weekend was also lending support to riskier assets, market players said.
China's imports of key commodities in May confounded expectations of a fall, with crude oil shipments at a record high and both copper and iron ore imports unexpectedly rising more than 10% from a month ago.
Improvement in general market sentiment eased the cost of insuring against corporate and sovereign defaults in Asia, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 5 basis points.
