Euro bounces on Irish deal, but doubts abound

The embattled euro crept off two-month lows on Monday after European authorities tried to protect the region's financial stability by agreeing to lend debt-soaked Ireland 85 billion euros (USD115 billion).

Market reaction to the deal in early Asian trade was mixed.

Currency and bond traders doubted the deal was enough to prevent fiscally pressured Portugal and Spain from being next in line to suffer a debt crisis.

Stock investors, on the other hand, seemed to have warmed to the Irish bailout, at least for now. The commodity market also seemed sanguine about Europe's fiscal tensions.

S&P 500 futures climbed 0.5%. The Australian .AXJO and New Zealand .NZ50 share markets, the first to start trade in Asia, suffered only light losses of 0.2% each.

Tensions on the Korean peninsula also remained in focus after North Korea's shelling of a South Korean island last week. Seoul shares .KS11 opened up 0.2%, but the won fell 0.3% against the dollar.

Gold, which tends to be in demand when investors shy away from risk, was a shade softer at USD1,358.56.

Crude oil prices were flat at USD83.94 a barrel.

But there were clear doubts in the currency market that Europe's debt problems were over.

Already, the euro was giving up some of its gains in early Asian trade. It was defensive at USD1.3278, having shot as high as USD1.3345 in thin trade after the European Union aid or Ireland was announced.

It had plumbed a two-month low of USD1.3200 in late New York trade on Friday.

Some analysts, predicting the euro was not out of the woods, said its latest bounce was driven by speculators taking profits in their bets against the common currency.

"The package is pretty much what most would have anticipated, so it's not a surprise to anyone," said Greg Gibbs, strategist at RBS in Sydney.

"It doesn't really change the real fear the market has that this could spread beyond Ireland to Portugal and Spain."

The U.S. dollar .DXY benefited the most from the euro's struggle, in part driven by safe-haven demand, and as investors continued to play the trend of a rebounding U.S. currency.

The dollar index, which measures its performance against a basket of currencies, was firm at 80.357, within spitting distance of a two-month high of 80.399 hit in New York on Friday.

U.S. two-, five- and 10-year Treasury futures were firm across the curve.