Fresh doubts emerged this evening over a European financial rescue package for debt-stricken Greece, taking the shine off early enthusiasm seen in a rising euro.

The single currency earlier surged to $1.3692 following Sunday's agreement by Greece's 15 euro partners to offer €30 billion in loans over the course of 2010. But the euro later fell back to $1.3588.

While Greece's borrowing rate also dropped under 7% to 6.637%, comments from Germany fuelled analysts' doubts over how and when the aid could become a reality.

On Tuesday the Greek government faces a key test of its credibility as it intends to issue short-term treasury bills worth €1.2 billion.

As Europe's biggest economy, Germany would be expected to cough up more than a quarter of the European total, but Germany said the 36-month loans at a roughly 5% interest rate would materialise only as a 'last resort'. Greece itself has said it hopes to be able to cope without the loans.

'The fact that a fire extinguisher has been mounted on the wall does not mean that it will be used,' Chancellor Angela Merkel's spokesman Christoph Steegmans told a regular briefing in Berlin. Germany stressed that any bail-out would first have to be agreed at an EU summit.

While the head of the International Monetary Fund Dominique Strauss-Kahn said the IMF was ready to join the effort, his officials have yet to spell out its conditions.

ECB head Jean-Claude Trichet, who earlier voiced concern about IMF involvement, described the euro zone deal as 'positive'.

Greece has already enacted savage budget cuts and raised taxes in the face of total debts of about €300 billion. It has to find around €11.5 billion by next month, part of a total €54 billion needed this year to cover its obligations.

Greek press hail euro zone rescue deal

Greek newspapers today welcomed an agreement by the euro zone to offer Greece up to €30 billion in emergency loans this year, with one daily saying the rescue was an 'oxygen tank'.

The Ethnos newspaper said the rescue package agreed yesterday was 'a brake on the scenarios of fear', referring to worries among investors on financial markets in recent months that Greece could default on its spiralling debt.

A front-page headline in Eleftherotypia read: 'An oxygen tank of €80 billion for three years.'
The newspaper said the offer, which Greece has said it will not need to call on for now, was 'a message to market hawks'.

In an editorial, Eleftherotypia said: 'Greece has stopped being vulnerable to market games'. But the daily added that 'despite this decision there is still a deficit of solidarity in the European Union. More steps are needed to bridge the divisions,' it added.

The business daily Naftemporiki meanwhile cited market observers as saying the deal 'constitutes a vote of confidence in the Greek government and a development that will calm (the markets), even if only temporarily.'