World stocks hit a two-week high on Friday and the euro and oil prices rose after European leaders agreed on a package to rescue Greece that hopes to prevent the region's debt crisis from deepening.

The dollar was under pressure as uncertainty intensified as to whether U.S. lawmakers could strike on a last-minute deal to raise the country's $14.3 trillion debt ceiling to avoid a default.

The deal on Greece showed that Europe was taking stronger action than markets had expected although many economists warned that it may not draw a line under the crisis in the longer-term.

At the emergency summit on Thursday, euro zone leaders promised 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.

The region's rescue fund, the European Financial Stability Facility, will be allowed to buy bonds in the secondary market if necessary and also to lend governments money to recapitalize banks.

The comprehensive nature of the deal raised optimism that Spain and Italy may avoid the sort of spiral into Greece's problems may be prevented spread into other indebted peripheral countries such as Spain and Italy.

It is encouraging they have come up with something and dealt with some of the restructuring, Louise Cooper, markets analyst at BGC Partners. The markets have got excited about it.

But the cuts to Greek debt do not put the country on a sustainable footing for growth and does not take us where we want to be.

MSCI world equity index <.MIWD00000PUS> rose 0.4 percent to levels not seen in a fortnight. European stocks <.FTEU3> added half a percent and emerging stocks <.MSCIEF> bounced 1 percent.

U.S. crude oil rose half a percent to $99.66 a barrel.

Bund futures Fell 43 ticks while credit default swaps of Greece and other peripheral countries fell broadly.

We still have to calculate the contingent liabilities of the EFSF and finally the contingent liabilities of Germany from all these rescue operations. But the markets are happy for the time being, said Kornelius Purps, strategist at Unicredit in Munich.

The dollar <.DXY> held steady against a basket of major currencies. The euro was also flat at $1.4417 while it rose one percent to 1.1894 Swiss francs.

U.S. CEILING

Efforts to avoid a U.S. default were underway in Washington with President Barack Obama and top lawmakers sought a last-minute deficit-reduction deal before the August 2 deadline to raise the country's debt ceiling.

Congressional aides report that a compromise plan could include up to $3 trillion in spending cuts but might leave tax reform for later.

The main obstacle remains the issue of tax increases that Obama's Democrats demand and Republicans vehemently oppose.

Most investor appear to have been working on the assumption that a deal would be forthcoming to stop a default. The Dow Jones industrial average <.DJI> gained 1.2 percent on Thursday on optimism both about Europe and the U.S. debt debate.

(Additional reporting by Joanne Frearson; editing by Patrick Graham)

Germany Barack obama