UPDATE 1-Egypt stocks soar to 3-week high after army ultimatum
(Adds closing share prices, currency and CDS rates, analyst comments)
CAIRO, July 2 (Reuters) - Egyptian shares surged to a three-week high on Tuesday and the currency strengthened a day after the armed forces gave Islamist President Mohamed Mursi a virtual ultimatum to share power.
Local investors believe army intervention in the political crisis could help put an end to 30 months of instability that has frightened away investors and tourists and drained the country's finances.
Nationwide protests against Mursi prompted the army to tell feuding politicians they had 48 hours to compromise or it would impose its own road map for the country.
The bourse's benchmark index, reopening after a bank holiday on Monday to mark the start of a new fiscal year, jumped 4.9 percent to its highest close since June 9.
The Egyptian pound strengthened on the black market. One dealer in central Cairo said he was selling dollars at 7.65 pounds and buying dollars at 7.60 pounds compared to 7.70 and 7.65 on Monday.
Outside of Egypt, the fixed-income market was more skittish, with the cost of insuring Egyptian debt against default surging to record highs of above 900 on Monday before slipping back to 875, Markit said.
The CDS market was too illiquid to give a price on Tuesday, Markit said.
Share prices had fallen 12 percent in June on fears a mass protest called for June 30 might deteriorate into violence, further aggravating a deteriorating economy. The main protests passed off peacefully, with only scattered incidents of violence elsewhere.
"I think they were expecting a lot worse to happen on the 30th," said Allen Sandeep, head of research at Naeem Brokerage, adding that the market may now be overreacting in the other direction.
"People expect that Mursi will go tomorrow and everything will be fine. But I think this is going to drag on. Even without Mursi being in power we still have to see what alternatives there will be."
The political wing of Mursi's Muslim Brotherhood called on supporters on Tuesday to take to the streets to resist an army move that a spokesman compared to the coup which brought Egypt six decades of military-backed rule.
But Mursi looked increasingly isolated, with the liberal opposition refusing to talk to him, millions of Egyptians in the street protesting against him and at least five of his ministers resigning from his government.
"It's a relief rally. The market has been sold off very heavily in the last few weeks," said Simon Kitchen, strategist for EFG Hermes. "The political environment is still very fluid, so its not certain how long this can last."
Shares soared in companies considered close the government of Hosni Mubarak, who was ousted from the presidency in a 2011 popular uprising.
Private equity firm Citadel Capital leapt by the 10 percent maximum allowed under stock exchange rules. Among property developers SODIC rose 10 percent and Talaat Moustafa 5.7 percent.
Ezz Steel, whose former chairman Ahmed Ezz was cleared of monopoly charges by a judge on Sunday, jumped 9.9 percent. Ezz was a senior member of Mubarak's now-dissolved National Democratic Party.
(Additional reporting by Carolyn Cohn in London; editing by Mark Heinrich)