European shares posted their biggest daily rise in more than 17 months today after European central banks started to buy euro zone government bonds under a €750 billion debt rescue package.
The "shock and awe" plan - the biggest since G20 leaders threw money at the global economy following the collapse of Lehman Brothers in 2008 - triggered a global stock market rally after panic selling last week.
The pan-European FTSEurofirst 300 index of top shares surged 7.4 per cent to close at 1,038.91 points - the index's biggest one-day percentage gain since November 24th, 2008 - while volumes were more than two and a half times the index's 90-day average volume.
Stocks bounced back after tumbling 8.9 per cent last week on worries that Greece's debt crisis would spread to other euro zone countries. The euro also rose by more than 3 per cent to above $1.30.
The Irish index gained 7.3 per cent and closed the day just below the 3,200 mark. On Wall Street, US stocks racked up their best one-day gain in over a Year, with the Dow Jones industrial average gaining 404.71 points, or 3.90 per cent, to 10,785.14.
The rescue package was hammered out by European Union finance ministers, central bankers and the International Monetary Fund in weekend negotiations.
But it left longer-term questions about whether Europe's weakest economies can manage their debt and how the European Union can develop more coherent economic and fiscal policies to underpin the single currency.
The package of standby funds and loan guarantees that could be tapped by euro zone governments shut out of credit markets, plus central bank liquidity measures and bond purchases to steady markets surprised financial analysts with its scale.
"The euro zone is certainly regaining confidence," European Commission president Jose Manuel Barroso told reporters, hours after an 11-hour meeting of EU finance ministers ended in the early hours of Monday as Asian markets opened.
Minister for Finance Brian Lenihan welcomed the decision of the Ecofin Council on what he described as a "comprehensive package of measures to support financial stability in the European Union".
At the conclusion of the meeting, Mr Lenihan said: "The agreement to establish a European Financial Stabilisation mechanism of up to €500 billion shows the determination of the European Union to provide financial support if needed to member states facing exceptional circumstances that are outside of their control. Member states are showing their resolve to support the overall European economy and the interests of all European citizens."
Risk premiums on peripheral euro zone sovereign bonds plummeted today, as did the price of insuring them against default on the volatile credit default swap market, while German bund futures tumbled by a two full percentage points as investors sold safe-haven debt.
German chancellor Angela Merkel, who for months resisted pressure to aid Greece with a debt crisis that eventually sent market tremors around the world, said the measures were necessary to guarantee the future of the euro.
"This package serves to strengthen and protect our common currency," she told reporters in Berlin. "We are protecting people's money in Germany."
Ms Merkel consented to the massive rescue plan after her centre-right coalition lost a regional election yesterday and US president Barack Obama and French president Nicolas Sarkozy telephoned her to ensure Europe would take the necessary steps to support the euro and keep global liquidity flowing.
A German government spokesman stressed the EU was not turning into a "fiscal transfer union" and it was possible that not all member states would take part in bilateral aid.
Britain, which is not in the euro and has a caretaker government following an indecisive general election last week, said it would not participate in the rescue or loan guarantees.
In concerted action, the US Federal Reserve reopened currency swap lines with several central banks to try to assure markets of dollar liquidity and the European Central Bank said it would buy government debt to steady investor nerves.
That decision, urgently sought by anxious European banks, reversed a long-standing reluctance to use what many economists call the "nuclear option" under market pressure.
Group of Seven and Group of 20 finance ministers offered public backing of the measures.
Former IMF chief economist Kenneth Rogoff told BBC radio that weak euro zone economies such as Greece and possibly Spain and Portugal would still have to restructure their debts to make them sustainable, despite vehement official denials.
The emergency measures are worth much more than any previous attempt by the 27-nation European Union or the 16-state single-currency group to calm markets.
EU monetary affairs commissioner Olli Rehn told a news conference the package "proves we shall defend the euro whatever it takes".
The €750 billion package consists of €440 billion in guarantees from euro area states, plus €60 billion in a European stabilisation fund that could be disbursed to help euro zone states if needed on strict austerity conditions.
EU finance ministers said the International Monetary Fund would contribute up to €250 billion, taking the total to €750 billion, or around $1 trillion.
IMF head Dominique Strauss-Kahn said any action by the global lender would be on a country-by-country basis.
Additional reporting: Reuters