Asian markets and the euro have risen after EU officials agreed a bailout deal for Cyprus, easing fears that the country’s banking system problems may spread.
Cyprus will now get a 10-billion euro ($13 billion) cash injection to keep its banking system running and prevent it from crashing out of the eurozone.
Investors had feared that its exit from the bloc may escalate the region’s debt crisis and derail a global recovery.
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.
A failure to reach a deal may have seen the European Central Bank (ECB) cut emergency funding to Cyprus’s two biggest banks, leading to an effective bankruptcy of Cyprus’s government.
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 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 favor of other assets, such as the Japanese yen and US dollar, seen as comparatively safer.
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.
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.
Cyprus had agreed a bailout deal with the EU and the IMF last week.
However, the EU and IMF had asked Cyprus to raise 5.8 billion 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.
The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.
According to the latest deal, all deposits under 100,000 euros will be “fully guaranteed”.
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.
The levy on accounts in Laiki Bank could be as high as 40%, correspondents 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.