* Euro rallies after European govts agree to rescue banks
* Sterling climbs after UK govt details bank bailout plan
* Stocks rally, panic selling pauses
(Changes dateline, byline, releads, adds comment, updates throughout)
By Naomi Tajitsu
LONDON, Oct 13 (Reuters) - The euro jumped on Monday, pulling away from a 1-1/2-year low against the dollar as a pledge by European governments to rescue banks from collapse plugged a wave of selling in the single European currency.
Sterling also rallied after the UK government said that three of the nation's biggest bank would take $64 billion in official funds to boost their capital [nLD69629].
Citing German coalition government sources, Reuters on Monday reported that the total volume of the country's financial rescue plan would be 470 billion euros, 400 billion of which would comprise guarantees, and the remainder bank recapitalisation [nBAT002424].
The French government would create a $55 billion fund to take stakes in its banks, media reports said, as markets awaited European governments to release details of their respective bailout plans on Monday.
European shares were boosted by the news, climbing more than 6 percent in early trade.
"The details are secondary to the fact that some sort of agreement has been put together," said Steve Barrow, head of G10 currency research at Standard Bank, adding that the joint pledge had sparked buying in the single European currency.
But he added: "The more interesting issue is the extent to which those European governments and central banks replicate the plan that has been put in place by the UK."
In exchange for the UK government's fund injections, Royal
Bank of Scotland
In addition, institutions would also have to limit executive pay and accept government input on new board appointments [nLD167263].
News that euro zone governments would act to salvage their
banks drove the euro
Gains in the euro came after it had tumbled as low as $1.3257 on Friday, its weakest level since March 2007.
The euro
Sterling
The yen came under selling pressure as investors cut long positions built up in the Japanese currency as part of trades to reverse carry trades that had used cheap, low-yielding yen funds to buy higher-yielding currencies.
Despite the dollar's losses against the euro, the U.S.
currency recovered from early losses against the yen
On Friday, the dollar fell near a six-month low of 97.91 yen.
FRAGILE RECOVERY
European shares <.FTEU3> traded 6.3 percent higher by 0816 GMT, after announcements by governments around the world to save their banking sectors provided some relief to investors after stock prices took a massive beating last week.
After many stock markets suffered their worst weekly losses ever last week, leaders from Group of Seven industrialised nations at the weekend set out a plan of action.
European officials offered to guarantee some bank debt and inject public funds into individual banks if necessary. [ID:nLC713950]
The United States said it would take stakes in banks in a first such move since the Great Depression, and Australia said it would guarantee deposits in its banks. [ID:nCRISIS]
The flurry of initiatives to contain the worst financial crisis since the 1930s boosed share prices, though analysts were uncertain whether the improving mood would last very long.
"I don't think we're out the woods," said Gerrard Katz, head of North Asia currency trading at Standard Chartered in Hong Kong, adding that the recovery in Asian stock prices had been fragile.
(Editing by Victoria Main)