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Asian markets rise as Cyprus deal eases crisis fears Asian markets rise as Cyprus deal eases crisis fears
(about 2 hours later)
Asian markets opened higher after officials said a bailout deal for Cyprus had been agreed, easing fears of a collapse of its banking system. Asian stocks and the euro have risen after officials agreed a bailout deal for Cyprus, easing fears that its banking system problems may spread.
A failure to reach a deal may have seen the European Central Bank cut emergency funding to Cyprus's two biggest banks. Cyprus will now get a 10bn euro ($13bn; £8.5bn) cash injection to keep its banking system running and prevent it from crashing out of the eurozone.
The fears were that such a move may cause the Cypriot banking system to collapse and even prompt the country's exit from the eurozone. Many investors had feared that its exit from the bloc may escalate the region's debt crisis and derail global recovery.
Shares in Japan, South Korea and Australia rose on the news of the deal. Shares in Japan, South Korea, Hong Kong and Australia rose on the news.
"The news was what markets were waiting for, some kind of an agreement," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo."The news was what markets were waiting for, some kind of an agreement," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Japan's Nikkei 225 index rose 1.3%, South Korea's Kospi gained 1.5% and Australia's ASX200 was up 0.7%. Japan's Nikkei 225 index rose 1.8%, South Korea's Kospi gained 1.3%, Hong Kong's Hang Seng added 0.7% and Australia's ASX200 was up 0.7%.
Broader gains Improving risk appetite
The developments in Cyprus over the past few days had once again triggered fears that the eurozone crisis may be escalating. A failure to reach a deal may have seen the European Central Bank cut emergency funding to Cyprus's two biggest banks, leading to an effective bankruptcy of Cyprus's government.
The biggest fear was that Cyprus might have had to leave the eurozone, if a deal was not agreed upon in time. The fears were that such a move may prompt the country's exit from the bloc.
Many analysts had been concerned that Cyprus's exit from the bloc may cause a loss of confidence across the eurozone and prompt investors to withdraw from other troubled economies of the bloc, such as Greece. Many analysts had been concerned that Cyprus's exit may cause a loss of confidence across the eurozone and prompt investors to withdraw from other troubled economies of the bloc, such as Greece.
These concerns had seen investors ditch the euro over the past few days in favour of other assets seen as relatively safer. These concerns had seen investors ditch the euro over the past few days in favour of other assets, such as the Japanese yen and US dollar, seen as comparatively safer.
News of the Cyprus deal boosted the euro. However, news of the Cyprus deal boosted the euro.
The single currency gained 0.8% against the US dollar. It was trading at $1.3044 in early Asian trade.The single currency gained 0.8% against the US dollar. It was trading at $1.3044 in early Asian trade.
It rose 1.3% against the Japanese yen to trade at 123.81 yen.It rose 1.3% against the Japanese yen to trade at 123.81 yen.
"This will likely limit the euro's downside, with those who shorted the euro covering their positions, and improve general risk sentiment," said Hiroshi Maeba, head of foreign exchange trading for UBS in Tokyo.
Ben le Brun, an analyst at OptionsXpress in Sydney, added that the deal was likely to have a positive impact on the oil markets as well.
"We should see some positive sentiment reverberate through energy markets overall for at least the next 24 to 48 hours," he said.
Brent Crude rose 0.3% to $108.34 per barrel in Asian trade, while US Light Crude gained 0.4% to $94.1 per barrel.
Uncertainties remainUncertainties remain
Cyprus had agreed a bailout deal worth 10bn euros ($13bn; £8.5bn) with the European Union (EU) and the International Monetary Fund (IMF) last week. Cyprus had agreed a bailout deal with the European Union (EU) and the International Monetary Fund (IMF) last week.
However, the EU and IMF had asked Cyprus to raise 5.8bn euros in order to secure the funds.However, the EU and IMF had asked Cyprus to raise 5.8bn euros in order to secure the funds.
They had proposed that Cyprus impose a one-off levy on bank deposits in order to raise the cash, a move that triggered protests in Cyprus and resulted in savers rushing to ATM machines to withdraw their money - a move that brought fears of a run on the banks.They had proposed that Cyprus impose a one-off levy on bank deposits in order to raise the cash, a move that triggered protests in Cyprus and resulted in savers rushing to ATM machines to withdraw their money - a move that brought fears of a run on the banks.
The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.
However, reports suggest that the latest deal will include a levy on deposits of more than 100,000 euros in Cyprus' two biggest banks. According to the latest deal, all deposits under 100,000 euros will be "fully guaranteed".
The levy on accounts in Laiki Bank - the country's second-biggest - could be as high as 40%, correspondents say. However, Laiki (Popular) Bank, the country's second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses.
An EU official told the BBC that under the draft agreement, Laiki Bank will be wound down with "a significant levy" affecting those with deposits of over 100,000 euros. The levy on accounts in Laiki Bank could be as high as 40%, correspondents say.
Large deposits in the country's biggest bank, Bank of Cyprus, could also be hit by the levy, reports say. Large deposits in the Bank of Cyprus, the country's biggest bank, will also face a levy.
Jeroen Dijsselbloem, president of the Eurogroup of eurozone finance ministers, told a press conference in Brussels that the percentage to be levied on large deposits in the Bank of Cyprus will be decided in the coming weeks.
Analysts said that while the draft deal had helped ease market jitters, uncertainties surrounding its implementation were likely to hurt sentiment in the coming days.Analysts said that while the draft deal had helped ease market jitters, uncertainties surrounding its implementation were likely to hurt sentiment in the coming days.
"We might get a small relief rally if we do get one, but markets will then very quickly turn to the risk of a bank run and whether conditions for the aid will be implemented smoothly," said Greg Gibbs, senior currency strategist at Royal Bank of Scotland. "We might get a small relief rally if we do get one, but markets will then very quickly turn to the risk of a bank run and whether conditions for the aid will be implemented smoothly," said Greg Gibbs, senior currency strategist at Royal Bank of Scotland.