Rescue plan fires stock rally, euro gains

LONDON (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 2 percent on the dollar and corporate and peripheral debt yields narrowed sharply against benchmarks.

"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 were up 2.7 percent with its emerging market-only counterpart jumping more than 3 percent.

The pan-European FTSEurofirst 300