Investment strategists and economists gave a generally lukewarm reaction to the decision by European Union leaders to agree on recapitalisation of Europe’s hard-hit banks and for holders of Greek debt to take a 50 per cent haircut.

The package, which has followed weeks of at times heated negotiations among eurozone member states, broadly matches market expectations, although some of the details remain worryingly vague, people in the financial markets said.

The massive debt woes of countries such as Greece, Italy and Ireland, coupled with a backdrop of sluggish economic growth, has put pressure on the euro and raised the spectre of at least one, if not more, sovereign debt default in the euro currency bloc, founded only 12 years ago.

“The initial appraisal by markets of the EU’s latest and supposedly last rescue package for Greece et al is quite positive. Equities, commodities, and the euro have risen while yields on safe haven government debt have fallen,” said Dan Morris, global strategist at JP Morgan Asset Management.

An important driver of market reaction has been how leaders of the euro zone have managed investor expectations, Morris said, pointing out that leaders had to maintain their goals of agreeing on a larger write-down on Greek debt, recapitalising banks and European Financial Stability Facility leverage, he said.

“Eyes will now turn to the next summit in early November but as long as there is continued progress towards these objectives, investors should go on signalling their approval,” Morris added.

Dominic Rossi, global chief investment officer for equities, at Fidelity Worldwide Investment, was positive, at least in terms of the initial details.

“Recapitalising banks is a step in the right direction. The decision to give banks until June 2012 is sensible. It allows banks to sell assets rather than just go directly to public markets, which would prove difficult. The sanctions on bank dividends and bonuses should ensure this gets done. And the €106 billion in fresh capital will ensure a new minimum of 9 per cent Tier 1 capital ratio for euro area banks,” he said.

“I believe that stronger banks will strive to be well above this level. The impact on growth in the short-term will be a negative as the deleveraging process continues, but a better capitalised banking system has got to be good in the long-term,” Rossi said in a note.

“The 50 per cent Greek write-down is an important step forward, although I would like to see more details. The Greek write-down sets a watermark for other European countries. How does Italy look on this basis? The eye of the storm will now move to Rome and its fragile government. I don't think yields on Italian debt will fall on the back of this agreement for long,” Rossi continued.

Strategists also noted proposals to leverage the EFSF by four or five times. Rossi argued that unless the ESFF has a “sound equity base”, leveraging it will be a “heroic piece of financial alchemy”, becoming what amounts to an insurance company selling protection against its own default.

However, Rossi said the package has not radically changed the dangers to the eurozone, citing the example of Italy’s 120 per cent debt-to-GDP ratio, which he said still looks unsustainable.

“Taken at face value, these two developments should lessen the risk of a disorderly default but there are many unanswered questions - including the details of the package, likely participation rates, what is being demanded of Greece and whether or not it can deliver,” said Darren Williams, European economist, global economic research, at AllianceBernstein.

“Last night's agreement also places a big focus on Italy with European governments welcoming the various commitments made in Italy in recent days (the raising of the retirement age, labour market reform etc). However, these are still promises and it is clear that Italy will now be subjected to enhanced surveillance,” he said.