* Euro rallies after European govts agree to rescue banks
* Sterling climbs after UK govt details bank bailout plan
* Stocks rally, panic selling pauses
(Changes dateline, byline, releads, adds comment, updates
throughout)
By Naomi Tajitsu
LONDON, Oct 13 (Reuters) - The euro jumped on Monday,
pulling away from a 1-1/2-year low against the dollar as a
pledge by European governments to rescue banks from collapse
plugged a wave of selling in the single European currency.
Sterling also rallied after the UK government said that
three of the nation's biggest bank would take $64 billion in
official funds to boost their capital [].
Citing German coalition government sources, Reuters on
Monday reported that the total volume of the country's financial
rescue plan would be 470 billion euros, 400 billion of which
would comprise guarantees, and the remainder bank
recapitalisation [].
The French government would create a $55 billion fund to
take stakes in its banks, media reports said, as markets awaited
European governments to release details of their respective
bailout plans on Monday.
European shares were boosted by the news, climbing more than
6 percent in early trade.
"The details are secondary to the fact that some sort of
agreement has been put together," said Steve Barrow, head of G10
currency research at Standard Bank, adding that the joint pledge
had sparked buying in the single European currency.
But he added: "The more interesting issue is the extent to
which those European governments and central banks replicate the
plan that has been put in place by the UK."
In exchange for the UK government's fund injections, Royal
Bank of Scotland <RBS.L>, HBOS <HBOS.L>, and Lloyds TSB <LLOY.L>
would be required to lend to homeowners and small businesses at
rates seen in 2007.
In addition, institutions would also have to limit executive
pay and accept government input on new board appointments
[].
News that euro zone governments would act to salvage their
banks drove the euro <EUR=> as high as $1.3671 in early European
trade, according to Reuters data. Bourses in Tokyo and New York
bond markets closed for respective national holidays.
Gains in the euro came after it had tumbled as low as
$1.3257 on Friday, its weakest level since March 2007.
The euro <EURJPY=> also climbed against the yen, rallying
roughly 2 percent to as high as 137.75 yen and recovering from a
tumble late last week that took the single European currency to
its lowest level since mid-2005.
Sterling <GBP=> jumped as high as $1.7222, recovering from a
five-year low around $1.68 hit on Friday.
The yen came under selling pressure as investors cut long
positions built up in the Japanese currency as part of trades to
reverse carry trades that had used cheap, low-yielding yen funds
to buy higher-yielding currencies.
Despite the dollar's losses against the euro, the U.S.
currency recovered from early losses against the yen <JPY=> to
trade at 100.54 yen, off a session low of 99.58 according to
Reuters data.
On Friday, the dollar fell near a six-month low of 97.91
yen.
FRAGILE RECOVERY
European shares <> traded 6.3 percent higher by 0816
GMT, after announcements by governments around the world to save
their banking sectors provided some relief to investors after
stock prices took a massive beating last week.
After many stock markets suffered their worst weekly losses
ever last week, leaders from Group of Seven industrialised
nations at the weekend set out a plan of action.
European officials offered to guarantee some bank debt and
inject public funds into individual banks if necessary.
[]
The United States said it would take stakes in banks in a
first such move since the Great Depression, and Australia said
it would guarantee deposits in its banks. []
The flurry of initiatives to contain the worst financial
crisis since the 1930s boosed share prices, though analysts were
uncertain whether the improving mood would last very long.
"I don't think we're out the woods," said Gerrard Katz, head
of North Asia currency trading at Standard Chartered in Hong
Kong, adding that the recovery in Asian stock prices had been
fragile.
(Editing by Victoria Main)
