Euro wins needed reprieve after tough all-night deal

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The accord paves the way for the eurozone's 500-billion-euro bailout fund to recapitalise ailing banks directly

A surprise deal to save the euro wrenched after an all-night summit of leaders of the 17 eurozone nations brought immediate relief to crisis-hit Italy and Spain and sent the single currency soaring

A surprise deal to save the euro wrenched after an all-night summit of leaders of the 17 eurozone nations brought immediate relief to crisis-hit Italy and Spain and sent the single currency soaring Friday.

At the end of often volatile talks stretching almost until dawn, EU president Herman Van Rompuy hailed a "real breakthrough" to calm financial markets and reshape the eurozone to prevent future crises.

"It was a difficult European Council and summit but it was a fruitful one," he said.

European markets shot upwards. Stocks in Milan rocketed up more than five percent, Madrid and Paris gaining more than four percent and German stocks adding three percent.

Interest rates which Spain and Italy must pay to borrow fell sharply, while the euro soared to $1.2693 from $1.2442 late in New York on Thursday.

After agreeing a growth pact to breathe life into Europe's flagging economies and mapping out a decade-long timeline for tighter union, including a single banking union, Van Rompuy said:

"Even if fighting the crisis has been the European Council's top concern for over two years ... we must not lose sight of the path ahead and keep setting orientations for the future."

"We realised something important," said German Chancellor Angela Merkel.

And she added: "We remained faithful to our principles: no offers without something in exchange."

Attending his first full summit, her freshly-elected French counterpart Francois Hollande, welcomed the market's warm response, saying "initial announcements have already had positive effects."

The accord paves the way for the eurozone's 500-billion-euro ($630 billion) bailout fund to recapitalise ailing banks directly, without passing through national budgets and thus adding to struggling countries' debt mountains.

This however, would occur only after a eurozone-wide banking supervisory body is set up, with leaders aiming for this to happen at the end of the year.

European Central Bank chief Mario Draghi said this was "a good result".

Another key measure was to use eurozone bailout funds "in a flexible and efficient manner in order to stabilise markets" -- a reference to buying countries' bonds to drive down high borrowing costs that in recent weeks have crippled Spain and Italy.

Merkel appeared to have dropped her insistence on recapitalisation funds to banks being channelled through governments but kept her demand that any such aid be combined with demands for reform of the financial sector.

And in more good news, EU leaders ended a decades-long deadlock to create a single European patent that will make it easier and cheaper for researchers to protect their inventions.

They also agreed a package of measures worth about 120 billion euros they hope will bolster growth in the recession-hit bloc.

They pledged to boost the capital of the European Investment Bank by 10 billion euros in order to increase its overall lending capacity by 60 billion and help vulnerable countries "grow themselves out of the crisis."

Another 55 billion euros is to be scraped together from unused EU funds and earmarked for small- and medium-sized enterprises and youth employment schemes, the EU chief said.

Italian Prime Minister Mario Monti and his Spanish counterpart Mariano Rajoy had threatened to block this "growth pact" unless they won concessions on short-term moves to drag their economies from the mire.

This prompted one European diplomat to fume that Madrid and Rome were "holding the pact hostage."

However, the head of the eurogroup finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said Italy and Spain then dropped their resistance when they got the short-term measures to stabilise their economies.

A beaming Monti told reporters afterwards: "Everything is very important for the future of the EU and the eurozone. Italy is doubly satisfied."

He acknowledged there were "some tensions" and added that he had to "put quite a bit of pressure" on other leaders to force through his wishes.

In Rome, Italy celebrated a double victory for its two "Super Marios" Balotelli and Monti after its triumph over Germany in the Euro 2012 semi-final and the outcome of the euro crisis summit.

The summit was being scrutinised both by jittery financial markets and world leaders, as the eurozone battles to solve a two and a half year debt crisis endangering the global economy.

And at the end of the day some analysts wondered whether the optimism would last. "The usual pattern for these things is euphoria followed by analysis leading to realism with an undertone of disappointment," said analysts at Moneycorp.