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By Chikako Mogi
TOKYO (Reuters) - The euro and Asian shares rose on Monday after Cyprus did a last-ditch deal with international lenders for a 10 billion euro ($13 billion) bailout hours before a deadline to avert a financial collapse on the Mediterranean island.
The euro rose to a session high of $1.3050 from around $1.2980 on the news, moving away from a four-month low of $1.2844 hit on Tuesday. The euro climbed 0.8 percent against the yen to 123.54 while the Australian dollar touched a high of 99.25 against the yen, inching closer to a 4-1/2-year peak of 99.99 yen hit earlier this month.
Gains in the euro and currencies typically linked to risk appetite weighed on assets favored as safe-haven, such as gold, which was nearly flat around $1,608 an ounce.
Cyprus agreed with the European Union, the European Central Bank and the International Monetary Fund on Monday for a bailout that will shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians.
The plan was swiftly endorsed by euro zone finance ministers and deposits below 100,000 euros will be transferred to the Bank of Cyprus (BOC.CY) to create a "good bank". German Finance Minister Wolfgang Schaeuble said Cyprus's parliament will not need to approve the bailout deal.
"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 FX trading Japan for UBS in Tokyo. "But it's hard to see the euro testing $1.35 levels, given prospects euro zone interest rates will not rise."
For the same reason, the yen's rebound was likely to be limited to last week's high of 93.45 yen against the dollar, he said, with solid U.S. economic recovery seen driving the dollar higher against the yen.
"The Cyprus issue was likely used to adjust bloated yen short positions. After last week's rebound, yen bear positions have lightened, putting the dollar/yen on course for a further rise," Maeba said.
The dollar rose 0.3 percent to 94.81 yen. Against a basket of key currencies, the U.S. currency was down 0.6 percent (.DXY).
The MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> climbed 0.8 percent, bouncing off its lowest level in three months struck earlier last week.
Australian shares (.AXJO) extended gains, rising 0.6 percent on the Cyprus news as well as on support from bargain hunters following last week's fall and a recovery in iron ore prices.
South Korean shares (.KS11) jumped 1.4 percent after closing the previous week at a 5-week low.
Japan's Nikkei stock average (.N225) advanced 1.5 percent to inch closer to a 4-1/2-year high. (.T)
U.S. crude futures edged up 0.2 percent to $93.93 a barrel. (O/R)
"This is certainly very good for risk appetite overall and that's going to have a positive impact across oil markets, so we should see some positive sentiment reverberate through energy markets overall for at least the next 24 to 48 hours," said Ben le Brun, an analyst at OptionsXpress in Sydney.
Market sentiment on Friday was partially lifted when hopes rose that Italy could end the political deadlock left by last month's inconclusive elections after President Giorgio Napolitano asked center-left leader Pier Luigi Bersani to assess whether he can win enough support in Italy's divided parliament to form a government.
Also on Friday, Greece's Piraeus Bank (BOPr.AT) struck a deal to take over the Greek branches of Cyprus's troubled banks, helping to shield Greek banks from the island's crisis and allowing Cyprus to shrink its bloated banking sector. The deal is subject to approval by European competition authorities.
(Additional reporting by Jessica Jaganathan in Singapore; Editing by Eric Meijer)
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