* Euro rises from last week's 14-month low vs dollar
* Aid package, ECB bond buying boost risky assets
* Unclear if package gives long-term support for euro (Adds quote, updates prices, changes byline, changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, May 10 (Reuters) - The euro rose broadly on Monday, rebounding from last week's 14-month low against the dollar after policymakers announced a $1 trillion emergency package to stabilize the currency and euro zone central banks began buying local government debt.
The aid package, hammered out by European Union finance ministers, central bankers and the International Monetary Fund, was the biggest since Group of 20 leaders rolled out support measures after the collapse of Lehman Brothers in 2008.
The euro earlier climbed near $1.31 as the plan calmed investor nerves and sparked a rally in risky assets. It then retreated below $1.30 as the initial euphoria faded somewhat.
"It's clear that (policymakers) have, at least for the time being, drawn a line under the liquidity concerns in Europe," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "As a result, we've seen risk appetite return to the markets across different asset classes."
Euro zone central banks started buying up government bonds on Monday, in a reversal of the European Central Bank's resistance to full-scale asset purchases as it fights to contain Greece's debt crisis. See [ID:nLDE649051]
Uncertainty persisted, however, over whether the package could give the euro lasting support since Greece and other peripheral euro zone countries must tackle fiscal deficits when their growth outlook is deteriorating.
"Ultimately, the sustainability of this trend will depend on whether the European countries can really implement the fiscal austerity programs and through that create credibility," Strauss added.
In early New York trading, the euro
The euro had fallen to $1.2510 on trading platform EBS last week, coinciding with currency speculators boosting bets in favor of the dollar to a level strategists said was the highest since the euro's launch in 1999 [IMM/FX].
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The single currency is still down about 9 percent since January, making it the worst performing major currency.
The euro rose 3 percent to 120.34 yen
"There is some uncertainty lingering about the mechanisms of the stabilization funds. In particular, it is still unclear where the money for the funds is going to come from," said Valentin Marinov, currency strategist at Societe Generale.
The dollar fell 1.1 percent against a basket of major currencies to 83.534 <.DXY>. The U.S. Federal Reserve reopened currency swap facilities with other major central banks on Sunday to ease market strains in Europe.
The Fed revived facilities established during the 2007-2008 financial crisis with the European Central Bank, and the central banks of Canada, the UK and Switzerland.
POLITICAL STALEMATE
Sterling rose 1.4 percent to $1.5005
Britain's opposition Conservatives and Liberal Democrats resumed talks on Monday to reach a deal to govern [ID:nLDE6480O4]. Investors are concerned a political stalemate will hamper efforts to tackle the UK's huge public deficits.
Such concerns pushed the pound to one-year lows of $1.4475 on Friday.
The Bank of England left interest rates at 0.5 percent and decided not to undertake further quantitative easing purchases at its Monetary Policy Committee meeting, as expected. [ID:nLDE6461UP] (Graphic by Scott Barber, Additional reporting by Neal Armstrong; Editing by Andrea Ricci)