* Global stocks jump on EU/IMF rescue plan
* Wall Street set for big gains at open
* Euro gains
* Spreads narrow between riskier bonds and benchmarks
By Jeremy Gaunt, European Investment Correspondent
LONDON, May 10 (Reuters) - Financial markets climbed away
from a potential abyss on Monday after the European Union and
International Monetary Fund agreed a bumper rescue package to
prevent a sovereign debt crisis spreading.
World stocks rose nearly 3 percent, the euro gained nearly 2
percent on the dollar and corporate and peripheral debt yields
narrowed sharply against benchmarks.
Wall Street looked set to join in with a strong start.
Although some questions remained about how the aid package
would solve the euro zone's long-term imbalances, it was
embraced strongly by investors.
"Euro zone policymakers surprised probably even the most
optimistic observers by presenting a quick and forceful,
unprecedented crisis package," ING said in a note.
"It does not solve the fundamental fiscal problems but it
gives countries now several years."
The package agreed earlier on Monday pledged 500 billion
euros ($670 billion) of loans and loan guarantees to any euro
zone countries needing funds, plus about 250 billion euros from
the IMF. []
It was a package 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 moves followed sharp sell offs in riskier assets across
the world last week prompted by fears that Greece's struggle to
avoid default on its debt would spread to other euro zone
economies and potentially elsewhere.
Global stocks as measured by MSCI <.MIWD00000PUS> were up
2.8 percent with its emerging market-only counterpart jumping
more than 3 percent.
The pan-European FTSEurofirst 300 <.FTEU3) leapt more than
6.6 percent, easily recouping Friday's losses. It lost more than
8 percent last week as the debt crisis bubbled.
"The EU has taken a decisive action to stamp out the
speculative attack against the euro and this should be
sufficient to bring some calm into the market," said Klaus
Wiener, head of research at Generali Investments.
"What has been done is sensible. It has sent a very strong
message to the market that the euro will not be allowed to
fail."
EURO REBOUNDS
The euro rallied from last week's 14-month low against the
dollar.
The currency was up 1.6 percent at $1.2967 <EUR=>, having
fallen to $1.2510 on trading platform EBS last week.
Mounting short positions on the euro prompted investors to
cover their positions, helping the single currency recover. It
was not clear, however, whether investors would turn long on the
currency.
Some questions remained about the package, however.
"It is still unclear where the money for the funds is going
to come from," said Valentin Marinov, currency strategist at
Societe Generale.
On bond markets, the premiums investors demand to buy
peripheral euro zone government bonds rather than German
benchmarks fell.
The Greek/German 10-year bond yield spread narrowed sharply
and the cost of insuring peripheral economy debt fell.
Liquidity in Greek bonds dried up last week with no trades
going through.
There was little sign, meanwhile, that British assets were
being driven by anything other than the global sentiment
following a weekend of negotiations to try to create a
government.
(Additional reporting by Natsuko Waki and Atul Prakash, editing
by Mike Peacock/Toby Chopra)
