By Sebastian Tong LONDON, May 10 (Reuters) - Emerging markets rallied sharply on Monday after a $1 trillion global emergency rescue package to stabilise the euro helped avert a meltdown in investor confidence over the European Union's weakest economies. Central and eastern European currencies recouped some of their recent losses though gains chalked up by the Romanian leu was constrained as the country faced continued pressure to rein in state spending to obtain further international emergency aid. The European Union (EU), working in tandem with the International Monetary Fund (IMF) and the U.S. Federal Reserve, unveiled a package of standby funds, loan guarantees, liquidity measures and bond buybacks to staunch a widening sovereign debt wound sparked off by Greece's struggle to fend off debt default. The largest bailout plan since the collapse of the Lehman Brothers in 2008 boosted the benchmark emerging equities index by over three percent by 1000 GMT, up from the 11-week lows it sunk to on Friday and outpacing the 2.8 percent gain seen in the MSCI all-global world index. Emerging sovereign debt spreads narrowed nearly 30 basis points to trade at 302 bps over U.S. Treasuries, though still hovering at their highest levels in two months. "There are big moves as a consequence of the package agreed by EU governments and the IMF, which is providing a kind of relief to the market...There are still some uncertainties, such as whether parliaments will have to vote on the measures, but it's a positive signal that shows euro zone governments standing behind the euro," said Murat Toprak, emerging market strategist at Societe Generale. Key for emerging markets, in particular, is the Fed's move to reopen currency swap lines with several central banks to ensure dollar liquidity. "Funding pressures in dollars had put a stronger pressure on riskier markets," said Toprak. Central and eastern European bourses were among the biggest gainers, reversing losses that took them to over two-month lows last week and outperforming their global counterparts. Czech shares surged 6.5 percent while Polish shares were nearly five percent higher. Hungarian shares and Romanian shares powered over nine percent higher. Israeli shares, which last week slid to their lowest in nearly five months, rose 2.8 percent. Turkish shares staged their biggest one-day gain since November 2008 to rise 6.7 percent. Russian markets were closed for a holiday. ROMANIA LAGS Poland's zloty rose 2.5 percent against the euro to lead broader emerging European currency gains in its largest daily gain in 16 months while the Czech crown pared gains after advancing over two percent against the euro. Hungary, which has come under closer investor scrutiny due to its high debt levels, saw its forint currency rise nearly two percent while Romania's leu saw a more modest recovery, rising 0.6 percent. Romania and Bulgaria are seen as among the more exposed economies in the region to Greece's debt crisis because Greek bank lending is significant in those countries. The cost of insuring Bulgarian and Romanian sovereign debt against default for five years slipped some 60-70 bps, reflecting the 60 bps fall in the broader CEEMEA SovX index, traders said. Romania itself is grappling with cost-cutting measures to meet conditions on its EU/IMF aid programme, which the IMF says will include the loss of some 250,000 public sector jobs over the coming years. The Israeli shekel, which hit an 18-month high on Thursday at the height of the recent markets turbulence, held firm against the greenback to firm 0.9 percent, bolstered by expectations of higher interest rates. "We project a couple of hikes more to go in Israel, pushing the base rates higher. Market hawkishness on the Israeli shekel rates is still in vogue," Citibank strategist Luis Costa wrote in a client note. (Additional reporting by Carolyn Cohn; editing by Tony Austin) Keywords: MARKETS EMERGING Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg on year Morgan Stanley Emrg Mkt Indx 955.61 +28.57 +3.08 -3.42 Czech Rep 1220.70 +74.10 +6.46 +9.25 Poland 2446.77 +109.78 +4.70 +2.43 Hungary 23535.52 +2111.86 +9.86 +10.88 Israel 1159.83 +31.69 +2.81 +1.29 Romania 5365.77 +457.82 +9.33 +14.39 South Africa 24601.52 +1003.50 +4.25 -1.58 Turkey 56207.58 +3520.61 +6.68 +6.40 China 2698.76 +10.37 +0.39 -17.65 India 17348.84 +579.73 +3.46 -0.66 Currencies Latest Prev Local Local close currency currency % change % change in 2010 Czech Rep 25.64 25.64 -0.03 +2.63 Poland 4.02 4.12 +2.56 +2.17 Hungary 274.35 279.44 +1.86 -1.46 Romania 4.17 4.19 +0.59 +1.70 South Africa 7.45 7.64 +2.45 -0.85 Kenya 77.50 78.00 +0.65 -2.32 Israel 3.75 3.78 +0.85 +0.99 Turkey 1.52 1.56 +2.46 -1.53 Brazil 1.84 1.84 +0.00 -5.12 Mexico 12.53 12.86 +2.63 +4.25 Debt Index Strip Spd Chg %Rtn Index Sov'gn Debt EMBI+ 302 -28 0.57 503.19 All data taken from Reuters at 1001 GMT. 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