European leaders on Friday said their hard-won deal to rescue debt-ridden Greece after months of bitter wrangling will help calm jittery markets and stabilize the euro, which has been rocked by the fiscal crisis.

The initial evidence was mixed, however — the euro recovered and Greek borrowing rates eased but European stock markets, with the exception of Athens' index, fell.

The bailout plan, hammered out late Thursday by euro zone nations, sets out a system to rescue Greece if it finds itself unable to borrow. It would provide individual loans from other euro zone countries and funding from the International Monetary Fund.

But it sets out strict conditions for activating the mechanism, saying it could only be used as a last resort, and requires unanimous agreement of all 16 countries that use the euro.

German Chancellor Angela Merkel, who had vociferously opposed an immediate bailout for Greece, said she was "very satisfied" with the outcome.

"I think that it demonstrated Europe's capability to handle things and at the same time did something for the stability of the euro and for solidarity with a country that is in difficulty," Merkel said as she arrived for the second day of the EU leaders' summit.

"For us, it is also important in the long term that the euro, which is such a success for peace and unity, remains stable. Yesterday was an important day for the euro," she said.

Although designed for Greece, the bailout program could also be used to help other vulnerable euro zone nations, such as Portugal and Spain, who have seen debt soar after the global economic turmoil of the past several years plunged their economies into recession.

Initial market reaction was cautiously positive, with the euro rebounding from 10-month lows against the U.S. dollar to $1.3377 on Friday morning trading in Europe from below $1.33 on Thursday.

The spread between Greek 10-year bonds and equivalent German issues — a key indicator of market trust — narrowed to 305 basis points Friday, down from about 330 on Thursday morning. But the level remains high, translating to roughly twice Germany's borrowing rate.

Jean Claude Juncker, head of the euro zone finance ministers, said governments need to keep watching how currency and financial markets react.

"I personally think we took a good decision yesterday evening and that the financial markets will be reassured," he said.

He said no amount of a possible bailout for Greece was agreed upon, but two diplomats said Thursday that the total loans would be some 22 billion euros ($29.44 billion).

Greece needs to borrow some 54 billion euros this year and must refinance some 20 billion euros in April and May. It has been able to sell bonds but says it cannot keep paying the high interest rates investors have been demanding to counter the risk they see that Greece could default.

The agreement was a clear victory for Merkel, who demanded that a rescue for Greece only come when the country runs out of other options. She also insisted that any backstop must include the IMF.

It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro's prestige and show that Europe was unable to solve its own financial woes. The euro zone has never turned to the IMF.

ECB President Jean-Claude Trichet, speaking late Thursday night, said the deal was "a solution that preserves the responsibility of the governments of the euro zone." He praised it as a "workable solution" that would "normally not need to be activated."

French President Nicolas Sarkozy said the euro zone would offer around two-thirds of any loan package with the IMF taking the remaining third.

Greece shocked markets and other EU nations last year by admitting it had falsified statistics to make its budget deficit look lower.

The country's 12.7 percent deficit for 2009 is four times over the EU limit, showing up the euro zone's inability to restrict member economies' debt and deficits. Worries of a Greek default also highlighted the lack of a safety net for euro zone countries that can't pay their bills.

The new plan sets up a possible rescue program for the first time. All euro zone nations are pledging to help — although any contribution would be voluntary.

Euro zone nations will also take steps to prevent debt and deficits getting out of control again, calling for tougher rules and sanctions. Van Rompuy has been tasked with drawing up possible options to toughen EU oversight of member's budgets and economic performance.

The Greeks were relieved, with Prime Minister George Papandreou saying Europe had "taken a great step" to protect Europe's currency Union.

Greek government officials say they believe the existence of standby loans will help them borrow at lower costs. They expect the spreads to fall significantly in coming weeks — and say they hope never to use the rescue plan.