Asian stocks rose and the euro climbed to a two-week high on Friday after European leaders agreed on a package to rescue debt-stricken Greece and gains will be sustained if U.S. policymakers also manage to cobble together a last minute deal.

European shares are set to open higher with financial spreadbetters expecting major indices to open between 0.6 to 0.7 percent higher.

Even as markets greeted the Europe rescue package news with relief, the single currency still faces considerable headwinds in its march toward a early May peak of near $1.50 as doubts regarding longer-term effectiveness of the deal remained.

For now, euro-sensitive plays, such as Japanese stocks including Canon <7751.T> and Nikon <7731.T> climbed, benefiting from the currency's strength, which would boost their exports.

Hong Kong shares <.HSI> were the clear outperformers in the region for the day with HSBC Holdings <0005.HK> -- which makes up a chunky 15 percent of Hong Kong's Hang Seng index -- up nearly 3 percent, helping the index gain 1.7 percent.

An emergency summit of leaders of the 17-nation currency area pledged on Thursday to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

Investors who have been stricken by a series of factors ranging from the U.S. and Europe debt crises to concerns about a sharp slowdown in China used this rare bit of good news to pick up bargains.

Australian shares <.AXJO> rose 1 percent while Japan's Nikkei <.N225> climbed 0.8 percent though a stronger yen may check gains.

The MSCI index of shares for Asia ex-Japan <.MIAPJ0000PUS> rose more than 1.1 percent, set for a fourth consecutive day of gains.

Equity gains were also sustained by a strong close on Wall Street with banks among the best performers after surprisingly strong results from Morgan Stanley .

In credit markets, the Asia ex-Japan iTraxx investment grade index tightened by it biggest margin in over three months, pulling in by five basis points to 115 bps.

Emerging markets remain a preferred investment destination despite the uncertainty surrounding markets. Both emerging market equities and debt recorded decent inflows in the week ended July 20, according to Thomson Reuters Lipper data.

EURO GAINS SHORT-LIVED?

Demand for risk was also rekindled as hopes of a breakthrough in the U.S. debt deadlock gathered momentum with the White House and top lawmakers scrambling to sort through competing options before a August 2 deadline.

In currency markets, the euro vaulted more than 1 percent to as high as $1.4440 on trading platform EBS in early trades, the highest level since July 6, before easing slightly to $1.4385, up more than a percent since Thursday.

The single currency's way forward is strewn with technical resistance levels in the areas of 1.4458, 1.4493 and 1.4519.

Barclays Capital said the latest rescue package remains short of key details in areas like private sector involvement and the proposed size of the euro zone's rescue fund.

The dollar is broadly weighed down, while the euro was lifted mainly by short-covering and it may have some more room to climb until around $1.45, said Makoto Noji, senior bond and currency strategist at SMBC Nikko Securities.

Still, the market is not overly optimistic as the euro's effective exchange rate has not come up. The euro also remains under pressure against the Swiss franc and the yen as the euro zone debt problems linger, Noji said.

Elsewhere, gold fell to around $1,590 an ounce, about $20 below a record high of near $1,610 set on Tuesday. Silver tumbled more than 2 percent.

In bond markets, yields on ten-year U.S. Treasury notes stabilized around 3 percent after rising by more than 12 basis points in the past three sessions.

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