(BERLIN) - Governments across Europe on Monday unlocked more than one trillion euros in rescue funds for the stumbling banking sector, as world stocks soared on news of the bail-out.

European leaders hammered out an agreement Sunday to plough capital into the hardest-hit banks and massively underwrite loans between financial players, with national plans styled on a British bail-out adopted last week.

Germany, France, Spain, and Austria Monday pledged a total of 1.03 trillion euros (1.4 trillion dollars) Monday, with the other 11 members of the eurozone single currency bloc set to follow suit ahead of an EU summit on Wednesday.

The lion's share of the funds will be used to guarantee interbank loans, which all but dried up in the panicked month since the fall of US bank Lehman Brothers, threatening the supply of credit to the wider economy.

In Germany, Chancellor Angela Merkel's cabinet approved an 80-billion-euro package to buy bank stocks and 400 billion euros in interbank loan guarantees.

French President Nicolas Sarkozy rolled out a 40-billion-euro lifeline to recapitalise the country's banks, and 320 billion euros to underwrite loans.

"Nothing will be spared to prevent the crisis getting any worse," Sarkozy told journalists. "The greatest danger is not to take risks, it is to do nothing."

Both the French and German leaders warned the rescue offers were not blank cheques and that banks should prepare to face much tougher regulatory scrutiny.

Sarkozy said the state loan guarantee would be charged at commercial rates and that banks that take it up would have to sign up to "ethical" obligations including curbs on executive pay.

And Merkel called for tighter international regulation, more oversight over banks for the International Monetary Fund and an overhaul of ratings agencies to rein in "market excesses".

In Madrid, Prime Minister Jose Luis Rodriguez Zapatero also announced a loan guarantee of up to 100 billion euros, while Portugal had already offered a 20-billion-euro guarantee.

The Dutch government will guarantee up to 200 billion euros of inter-bank loans in a bid to restore trust in the financial sector, Prime Minister Jan Peter Balkenende said.

Austrian Chancellor Alfred Gusenbauer announced Vienna would guarantee up to 85 billion euros in loans and set aside 15 billion euros for recapitalisation.

And Italy's Finance Minister Giulio Tremonti said Rome would spend "as much as necessary" to safeguard the country's banking sector.

New stormclouds emerged as the EU said it stood ready to help Hungary's government after its currency, the forint, slumped last week. The IMF has made a similar offer.

Market authorities in Iceland, reeling from the near wipe-out of its banks, postponed the reopening of the Reykjavik stock exchange until Tuesday.

However, European stocks reeling from huge losses last week rocketed Monday, with several markets posting double-digit gains at the close of trade after governments came to the aid of shaky banks.

The London FTSE 100 index of leading shares jumped 8.26 percent to close at 4,256.90, while in Paris the CAC 40 rose 11.18 percent -- its largest ever one-day gain -- to 3,531.50.

The Frankfurt Dax soared 11.40 percent to 5,062.45.

And two key interbank lending rates, Libor and Euribor, eased sharply Monday on the stepped-up European moves.

In London, the government announced it was pumping 37 billion pounds (47 billion euros) into three struggling banks -- Royal Bank of Scotland, HBOS and Lloyds TSB -- as part of a 500-billion-pound aid package announced last week.

The plan's architect, Prime Minister Gordon Brown, called Monday for the creation of a "new international financial architecture" to replace the Bretton Woods system created at the end of World War II.

The Bank of England, European Central Bank and Swiss National Bank also moved to free up frozen lending by providing commercial banks with unlimited amounts of dollars for up to 84 days.

Banks worldwide need dollars to finance operations, but the market on which they would normally borrow them seized up following the collapse in the US subprime mortgage market.

Summit of the euro area countries: declaration on a concerted European action plan of the euro area countries

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