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Monday October 13, 2008 - 12:13:18 GMT
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FOREX NEWS-Euro, sterling jump as Europe govts rescue banks


Mon Oct 13, 2008 7:39am EDT

* Euro pushes up after European govts agree to rescue banks

* Sterling also rallies as UK govt details bank bailout plan

* Stocks surge, panic selling arrested

* UK's Brown calls for remake of Bretton Woods pact

(Changes byline, releads, adds comment, updates throughout)

By Veronica Brown

LONDON, Oct 13 (Reuters) - The euro shot up 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 deluge of selling in the single European currency.

Sterling also gained traction after the British government said three of the nation's biggest banks would take $64 billion in official funds to boost their capital [nLD69629].

According to a draft bill seen by Reuters on Monday, a rescue package for Germany's financial sector includes a fund to provide up 400 billion euros in guarantees for banks. Details of the plan were due at 1300 GMT [nLD220275].

The French government would create a $55 billion fund to take stakes in its banks, media reports said, as markets awaited the release of details for other European governments' respective bailout plans.

European shares were boosted, climbing more than 6 percent in early trade and maintaining most of the gain through the morning.

"The biggest change from today relative to last week is the fact that euro zone officials seem to have come up with a template plan from which national governments can pick and choose and implement where they see necessary," said Derek Halpenny, European Head of Global Currency Research at BTM-UFJ in London.

"We're certainly getting a greater shift towards the template used by the British government, which seems at the moment to be the best plan in town and the one investors are warming most to," he added.

In exchange for the UK government's fund injections, Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), and Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) 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 [nLD167263].

British Prime Minister Gordon Brown called for world leaders to come together to remake the Bretton Woods agreement to tackle a 21st century globalised financial system.

The Bretton Woods conference in 1944 helped draw up the post-war financial order and established the International Monetary Fund (IMF) and the World Bank.

The euro spiked as high as $1.3671 <EUR=>, according to Reuters data. Bourses in Tokyo and New York bond markets were closed for respective national holidays.

By 1122 GMT, the single currency had pared early gains but was still up 1.3 percent on the day at $1.3577, having hit a low as $1.3257 on Friday, its weakest since March 2007.

The euro <EURJPY=> also climbed against the yen, and was last up 1.1 percent at 136.53 yen and recovering from a tumble last week that took it to levels last seen in mid-2005.

Sterling <GBP=> jumped as high as $1.7278, pulling away from a five-year low around $1.68 hit on Friday.

The yen was sold broadly 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 100.49 yen, off a session low of 99.58 according to Reuters data.


European shares were last trading 5-1/2 percent higher, with sentiment bolstered by the bank rescue packages after a drop of more than 20 percent last week.

Leaders from Group of Seven industrialised nations at the weekend set out a plan of action to deal with the ongoing meltdown in the banking sector.

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. [ID:nCRISIS]

While the flurry of initiatives to contain the worst financial crisis since the 1930s may have stemmed waves of selling for now, analysts were uncertain whether the improving mood would last very long.

"With risk perception hitting yet another record high last may take longer until investors' confidence is restored to its pre-crisis levels," Dresdner Kleinwort strategists said in a note to clients.

"New triggers of risk aversion like real sector defaults should abound as global economy heads into a recession going forward. Markets thus should remain jittery in the coming months," they added. (Reporting by Veronica Brown; Editing by Chris Pizzey)

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