TOPWRAP 10-Euro zone agrees emergency steps to contain crisis

* Euro zone leaders formally approve Greek loans

* Leaders agree on need for mechanism to stem crisis

* G7 discusses Greek situation, Obama talks to Merkel

* World stocks hold near three-month low

(Adds closing comments, statement)

By Jan Strupczewski and Ilona Wissenbach

BRUSSELS, May 7 (BestGrowthStock) – Euro zone leaders agreed on
Friday that they would have special measures ready before
financial markets open on Monday to prevent financial turmoil in
Greece spreading to other countries such as Spain and Portugal.

The leaders of the 16 countres that use the single currency
said after talks with the European Central Bank and the
executive European Commission they were ready to take whatever
steps were needed to protect the stability of the euro area.

“We will defend the euro whatever it takes. We have several
instruments at our disposal and we will use them,” European
Commission President Jose Manuel Barroso said after a euro zone
summit in Brussels.

He declined to give any details of the proposals, which will
be presented to all 27 European Union finance ministers for
approval on Sunday.

Financial markets have been pounding euro zone countries
with high deficits or debts as well as low economic growth,
threatening to force Portugal, Spain and Ireland into a position
where, like Greece, they would need to seek financial aid.

Euro zone leaders, who have been accused of heightening
market uncertainty with a lack of action, agreed in the face of
rising market concern to accelerate budget cuts and esnure
budget deficit targets are met this year.

They agreed to sharpen EU budget rules and have more
effective sanctions for rule-breakers, and to pay close
attention to debt levels and competitiveness.

They agreed they faces an estraoridnary situation after
giving their political approval to an EU-IMF deal to release 110
billion euros ($147 billion) to Greece over three years.

They said they fully supported the European Central Bank in
its actions to safeguard the stability of the euro zone. The
leaders’ statement said all euro area insitutions, incuding the
ECB, woudl use the “full range of means available to ensure the
stability of the euro area.”

Asked whether the ECB was ready to buy bonds that need
financial support, Barroso said he would not tell the ECB what
to do but EU President Herman Van Rompuy said all euro zone
institutions agreed “to use the full range of means available to
esnure the stability of the euro area.”

“It is a time of emergency,” an Italian spokesman quoted
Italian Prime Minister Silvio Berlusconi as saying during the
meeting in the Belgian capital.

Fears that the emergency loans might not be enough to
prevent a Greek default and avert a broader economic crisis kept
world stocks near a three-month low, despite strong U.S. jobs
data.
Group of Seven finance ministers discussed the situation in
a conference call after U.S. Federal Reserve officials expressed
concern, and agreed to keep a close eye on the markets.

U.S. President Barack Obama told German Chancellor Angela
Merkel by telephone that he backed efforts to rescue Greece and
said regulatory agencies were investigating an “unusual” sudden
drop on U.S. markets on Thursday.

“We agreed on the importance of a strong policy response by
the affected countries and a strong financial response from the
international community,” Obama said. [ID:nN07271483]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on euro’s performance http://r.reuters.com/vyh72k
Euro zone crisis in graphics http://r.reuters.com/fyw72j
Comparison of maturity profiles http://r.reuters.com/buv62k
Bank exposure to Greece/Portugal http://r.reuters.com/mun79j
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TIGHTER REGULATION

Obama and Merkel spoke before the Brussels summit, at which
the euro zone leaders formally approved the loan package which
finance ministers backed last Sunday.

But despite broad agreement on the need to tighten budget
discipline, the euro zone leaders found agreement elusive on a
crisis mechanism to protect other countries.

“This is a systemic problem. It’s a question of the
stability of the euro,” one EU official quoted ECB President
Jean-Claude Trichet as saying during the meeting.

Merkel, who presides over Europe’s largest economy and has
often been at odds with other EU leaders because of German
public opposition to helping Greece, said she would not rule out
reform of Union treaties to tighten budget rules.

Other EU leaders have resisted such changes and the
27-country bloc has struggled for unity during the crisis,
leading to accusations that its hesitancy has increased the
uncertainty on the jittery financial markets.

Hours before the meeting, the German parliament approved its
share of the Greek rescue, the largest contribution by a euro
zone country. The Dutch parliament also approved its part of the
deal and Italy’s cabinet has given initial approval.

But five German academics filed a legal challenge to the
package, reflecting widespread German public opposition to the
measure. [ID:nBAT005423]

MARKET VOLATILITY

Philadelphia Federal Reserve Bank President Charles Plosser
said the crisis did not pose a huge risk to the United States,
but this did not mean it could not evolve into one.

“The challenges that Greece poses are at the moment
primarily for Europe more broadly … that can spill over to us
in the form of a weaker market for our exports,” he said.

“The more direct danger is of course concerns about the
financial markets and how they will behave.” [ID:nN0799781]

Pamela Cox, the World Bank’s vice president for Latin
America, said the region not was in danger of direct fallout
from Greece and the euro zone’s debt crisis. “But if there is a
global contagion, Latin America will be affected,” she said.

Dismissing suggestions the euro zone was about to break up,
European Central Bank Governing Council member Guy Quaden told a
Belgian newspaper: “Portugal, Spain, Ireland or Italy are not in
the same situation as Greece.” [ID:nLDE6462AP]

Euribor bank-to-bank lending rates had earlier reached their
highest level in almost four months and the euro traded close to
a one-year trough. [ID:nLDE6460KU]

The market volatility could prompt China to move more slowly
than expected to let its yuan currency appreciate, foreign
exchange strategists said.

Greece’s parliament backed an austerity plan on Thursday but
selling accelerated across markets after the ECB said it had not
considered buying government bonds to ease Greece’s debt crisis.

European investment-grade corporate credit default swaps hit
their widest levels in more than a year, and there was a rise in
the premium that investors demand to buy peripheral euro
government bonds rather than those issued by Germany.

Greece’s 30 billion euro ($40 billion) austerity bill
imposes years of hard measures in return for the joint rescue by
the EU and IMF, and has led to violent protests in Athens.
– For more on the Greek debt crisis click on [ID:nTOPNOW2]
Investment Analysis

(Additional reporting by Justyna Pawlak, Ilona Wissenbach,
Philip Blenkinsop, John O’Donnell, George Matlock, Pedro
Nicolaci da Costa; writing by Andrew Roche and Timothy Heritage;
editing by David Stamp)

TOPWRAP 10-Euro zone agrees emergency steps to contain crisis