A bailout of the crippled banks of Spain should relieve world financial markets and provide a lift for stocks in the United States, which have had a rocky six weeks because of investor concern about Europe.
But any boost will be short-lived, market experts said Sunday, unless Europe comes forward quickly with more bold action to reassure the world that it finally has a grip on its almost three-year-old debt crisis.
"I think what we're all trying to figure out right now is, is this the end of the concern? Are we tracing out a bottom or a bear?" said Sam Stovall, chief equity analyst at S&P Capital IQ, a market research firm.
Investors will have their first chance to react to the bailout as markets open Monday. The package includes loans of up to $125 billion for Spanish banks from Spain's European neighbors. It is similar in concept to how the U.S. government shored up banks in 2008 with the Troubled Asset Relief Program, or TARP.
Despite the turmoil in Europe, last week was the best of the year for U.S. stocks. The Standard & Poor's 500 index rose 3.6 percent, partly in anticipation of a Spanish bank rescue. The fact that it wasn't a surprise might limit the further jump for stocks, Stovall said.
Peter Tchir, manager of the hedge fund TF Market Advisors, said he expects a rapid gain this week for many investments, including U.S. and European stocks and bonds issued by Spain and other troubled nations.
He said he expects traders to sell traditionally safe investments like U.S. Treasurys and German bunds, which already are paying zero interest on five-year debt. Selling would drive down prices and drive up interest rates.
For riskier investments like stocks, "We'll get a brief rally on Monday or Tuesday," Tchir said. "Then people will sit around saying, 'What comes next?'"
As fear about Europe intensified or eased in recent weeks, traders returned to a pattern of selling or buying risky assets based on headlines from overseas, with little regard to the specific investment.
As stocks move in lockstep, they are more likely to rise and fall quickly and broadly. The three biggest weekly moves this year for the S&P — two down, one up — have all come in the past month.
Such tight correlation between investments also signals "a crisis coming to a conclusion, rather than just beginning," Stovall said.
That doesn't mean things won't get worse. It just means investors are growing impatient for a resolution to a crisis that has stifled a spring rally for U.S. stocks for the third year in a row.
The rescue should soothe bond investors, who have been increasingly worried about the ability of Spain, Italy and other European countries to pay off their debts.
As bond investors lose confidence, they demand higher yields on debt issued by the countries. That boosts their borrowing costs, making it more difficult for governments to climb out of the crisis.
Spain is the fourth and largest of the 17 countries that use the euro currency to seek a rescue from other countries. A financial crisis has gripped Spain since 2008, when a real estate bust caused big losses for many banks.
A Spanish bank rescue fund set up in 2009 was running out of money, and the government has already nationalized Bankia, a major bank. The rescue plan aims to calm investors by taking bank losses out of the equation.
If investors are confident that Europe is prepared to help prop up Spain's financial system, they will be more willing to buy debt issued by Spain. Its borrowing rates, as reflected in bond yields, will fall back to more normal levels.
The yield on Spain's 10-year government bond was 6.2 percent on Friday. Three years ago, Spain could borrow at about 4 percent.
"This is the first clear indication that Europe is starting to be aggressive again," Tchir said. "There could be some volatility in bonds as people decide how good or bad it is, but I think the net decision will be that it is good."
The rescue money will come from pools set up by other euro countries. Spain's government will distribute it to the banks. The banks will pay it back with interest, and the money will go back to the rescue pools. Interest rates and other details had not been revealed Sunday.
By shifting some of the risk to other countries, Spain buys time to sort out its crisis. And European leaders have an opportunity to roll out more confidence-building measures.
Tchir said he drew hope from the international coordination that led to the Spanish bank bailout. He noted that the International Monetary Fund was involved, without having given any money.
And U.S. Treasury Secretary Timothy Geithner issued a public statement quickly after the news from Spain, signaling strong coordination among U.S. and European leaders.
"Europe realized they were on the cusp," Tchir said. "I think (world leaders) decided, 'Let's figure out a bunch of things that give us a big push and another six months to get our economies in order."
For that to happen, he said, Europe will have to encourage economic growth by backing off demands for massive spending cuts by Greece, Portugal and Ireland, the three nations that have already received bailouts in exchange for agreeing to deep and painful cuts.
Greece holds an election next Sunday, and the leader of Syriza, a far-left Greek political party, has vowed to cancel Greece's international bailout agreement if the party wins.
That could ultimately lead to Greece's exit from the euro, further inflaming the crisis, and could wipe out any gains that U.S. stocks and other investments enjoy after the Spanish bank bailout.
U.S. investors are already worried about slowing job growth at home, and a prolonged crisis in Europe only adds to the challenge for the U.S. economy by hurting the market for U.S. exports.
"We have a lot of political, economic and fundamental headwinds that are not simply going to be dealt with by offering some money to bail out Spanish banks," Stovall said.Comment on this story
He said there are plenty of reasons to expect a rally that could last for a couple of weeks without eclipsing the market's recent high.
That was April 2, when the S&P closed at its highest level since the financial crisis of 2008. The Dow's post-crisis high was May 1. The S&P is down 6.6 percent from that high and the Dow 5.5 percent, largely because of fear about Europe.
Stovall said investors should view any stock bounce this week in a long-term context. The bailouts might lift U.S. stocks for a few days, he said, but "I don't feel confident enough to say that it would also support a long-term rally."
Daniel Wagner can be reached at www.twitter.com/wagnerreports.