* Investors welcome Greek rescue package
* Riskier assets advance, peripherals bonds rise
* Focus shifts to U.S. debt ceiling talks
By Anirban Nag
LONDON, July 22 World stocks hit a two-week high
on Friday, while the euro and oil prices rose as a stronger than
expected new rescue package for Greece allayed immediate
concerns about the spread of Europe's debt crisis.
The dollar was subdued, however, as uncertainty intensified
as to whether U.S. lawmakers could strike a last-minute deal to
raise the country's $14.3 trillion debt ceiling and avoid their
Many economists also warned that the Greek deal would not
draw a line under Europe's problems in the longer-term,
highlighting the risks to its quick implementation and whether
political leaders could sell it to their respective countries.
"The deal is positive. A debt/growth deal is the only
solution for an insolvent country and that is what the EU has
done, but political and implementation risks remain," said Lena
Komileva, global head of G10 currency strategy at Brown Brothers
At an emergency summit on Thursday, euro zone leaders
promised a second bailout with an extra 109 billion euros ($157
billion) of government money, plus a contribution by private
sector bondholders estimated to total as much as 50 billion
euros by mid-2014.
The region's rescue fund, the European Financial Stability
Facility, will be allowed to buy bonds in the secondary market
if necessary and also to lend governments money to recapitalise
The broad nature of the deal -- it involves private
investors and actively cuts Greece's debt burden -- raised
optimism that investors may now hold off with a fresh attack
that could trouble Spain and Italy.
They took in their stride a statement by Fitch that it would
declare Greece in restricted default on its debt -- seen as an
expected consequence of Thursday's deal.
MSCI world equity index rose 0.5 percent to
its highest in two weeks. European stocks was up 0.65
percent while emerging stocks bounced nearly 1 percent
to its highest in more than a week.
U.S. stock futures SPc1, DJc1 pointed to a firm start
for Wall Street.
U.S. crude oil CLc1 rose 0.2 percent to $99.34 a barrel
while the euro was firm at $1.4415, hovering near a
two-week high against the dollar and jumping versus the Swiss
The cost of insuring Greek, Irish and Portuguese bonds
tumbled as did yields on peripheral debt while safe-haven Bund
Ten-year Greek bond yields fell by more than 1
percentage point to 15.64 percent, Portuguese 10-year debt
yields were down 49 basis points, and Irish yields
fell 45 basis points.
Analysts welcomed the fact the plan foresaw an easing of the
terms on the bailout loans to Greece, Ireland and Portugal but
had a series of questions over the involvement of bondholders
and the amount of liabilities the rescue fund can run up.
"We still have to calculate the contingent liabilities of
the EFSF and finally the contingent liabilities of Germany from
all these rescue operations. But the markets are happy for the
time being," said Kornelius Purps, strategist at Unicredit in
U.S. DEBT CEILING
The dollar eased against a basket of major
currencies, and ceded ground to growth-linked currencies like
the Australian dollar .
Efforts to avoid a U.S. default were underway in Washington
with President Barack Obama and top lawmakers sought a
last-minute deficit-reduction deal before the Aug. 2 deadline to
raise the country's debt ceiling.
Congressional aides report that a compromise plan could
include up to $3 trillion in spending cuts but might leave tax
reform for later.
The main obstacle remains the issue of tax increases that
Obama's Democrats demand and Republicans vehemently oppose.
Most investor appear to have been working on the assumption
that a deal would be forthcoming to stop a default. The Dow
Jones industrial average gained 1.2 percent on Thursday
on optimism both about Europe and the U.S. debt debate.
(Additional reporting by Jessica Mortimer,; William James,
Joanne Frearson; editing by Patrick Graham)