* Greece emergency aid to be formally launched on Friday
* Euro, bonds drop over fears plan will hit political hurdles
* Investors wary whether Greece can meet austerity targets
* Could crisis spread to other euro zone weaklings?
By Lefteris Papadimas and Jan Strupczewski
ATHENS/BRUSSELS, May 3 A 110 billion euro ($146 billion) rescue is set to start flowing to debt-ridden Greece this week, but fears about the viability of the largest ever bailout of a country has rattled the same markets it had intended to soothe.
The euro EUR= fell on Monday despite the bailout's announcement at the weekend on doubts whether Greece can implement the austerity plan it has promised in exchange for the aid and fears that other euro zone countries might be vulnerable. [ID:nSGE642083]
Euro zone government bonds opened lower, and shares dropped 0.2 percent in early trade .FTEU3 a day after EU ministers approved the three-year emergency loan package.
In return, Athens is committed to radical savings that have sent thousands of people into the streets in protest.[ID:nLDE6400CL]
"There's a lack of conviction that this is the silver-bullet solution. The longer-term sustainability of this level of austerity has got to be open to question," said Tony Morriss, senior currency strategist with ANZ Bank in Sydney.
"It doesn't look like the market is convinced yet, that's the story the euro is telling. The deal still has to get through parliaments and it's going to be a hard sell," added a European-based forex trader.
"This is unprecedented stuff, but the danger is it puts the focus on to Spain and Portugal."
Asian stocks outside of Japan, which was closed for a public holiday, fell just over 1 percent .MIAPJ0000PUS as investors feared the bailout will face stiff political challenges and could be the first of several equally hefty rescues for other euro zone weaklings.
Economists said that if the emergency aid fails to win over sceptical investors -- and gain the necessary parliamentary approval by Germany among others -- European countries could end up footing a bill of half a trillion euros ($650 billion) to save other fiscally weak nations. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Greek Crisis page Top News: r.reuters.com/hus75h Euro zone crisis in graphics: r.reuters.com/fyw72j Timeline: r.reuters.com/nyh29j For a factbox on Greek budget waste..........[ID:nLDE63S0AX] For details of aid package....[ID:nLDE64107I] For an overview of stories on the crisis.... [ID:nLDE6351JT] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The euro, which analysts had expected to rally in relief over the bailout, fell 0.6 percent to $1.322 in Asian afternoon trade.
Economists said it would likely remain weighed down by the political uncertainty and doubts that Greece would be able to deliver promised spending cuts and tax hikes worth 30 billion euros over three years, on top of belt-tightening steps already taken. [ID:nLDE6410K8]
Greece intends to bring its fiscal deficit down to the EU limit of 3 percent of gross domestic product by 2014 from 13.6 percent in 2009.
"For the week ahead, the euro could see some upside given the unprecedented aid package laid out for Greece released over the weekend," said economists at United Overseas Bank in Singapore.
"But this may be short-lived given continuing concerns about other European countries' sovereign risk, the lagging euro zone growth, and extent of Greek ability to implement the belt-tightening programmes."
The euro has fallen for five months, the longest string of losses since the worst of the financial crisis in 2008. Since a December high above $1.50, the euro has dropped nearly 12 percent, as the Greek fiscal crisis called into question the stability of the euro zone.
The first rescue of a member of the 16-nation bloc aims to stem a debt crisis that has shaken markets, dented confidence in the euro and begun to spread to fellow euro zone weaklings Portugal and Spain. Berlin's hesitancy has fuelled market panic.
Crucially, the aid would be released in time for Athens to make a big debt repayment to creditors on May 19.
While the rescue package should remove the threat of a Greek default and reduce the pressure that has sent borrowing costs for it and other highly indebted euro zone states soaring, the aid still needs parliamentary approval by Germany and other states.
Euro zone leaders will meet at a special summit on Friday to formally launch the aid, following weeks of tough talk and procrastination due to public opposition to handouts for Greece.
German politicians have voiced reluctance to approve the rescue, posing a challenge to Chancellor Angela Merkel who said she would fight for parliamentary approval by the end of the week. Berlin's share of the loans is the biggest of any EU state at about 22 billion euros out of 80 billion.
On Monday, the Institute of International Finance, a lobby group representing some of the world's top banks, welcomed agreements by the European Union and the International Monetary Fund (IMF) to launch the bailout and promised to do their share to support it.
Greek Prime Minister George Papandreou struck a sombre note.
"It is an unprecedented support package for an unprecedented effort by the Greek people," Papandreou, wearing a dark purple tie, the colour used for funerals in Greece, told a televised cabinet meeting. ($1=.7521 euro)
(Additional reporting by Kevin Plumberg in Hong Kong)
(Writing by Miral Fahmy, editing by Tomasz Janowski)