* Euro rises from 14-month low vs U.S. dollar
* Aid package, ECB bond-buying boost risky assets
* Brown quitting as UK Labour leader; sterling wobbles
* Doubts remain over sustainability of euro bounce (Updates prices, adds comment, UK'S Brown resigning, changes byline)
By Steven C. Johnson and Wanfeng Zhou
NEW YORK, May 10 (Reuters) - The euro rallied on Monday after global policymakers announced a $1 trillion emergency loan plan to stabilize the currency and prevent a European sovereign debt crisis from spreading.
The money, which would be available to euro zone countries that get into financial trouble, was the biggest bailout since Group of 20 leaders rolled out emergency support for the world economy following the 2008 collapse of Lehman Brothers.
The euro soared above $1.30, rebounding from a 14-month low near $1.25 hit last week as markets feared a debt crisis in Greece would spread to other euro zone countries, including Spain and Portugal. U.S. and European stocks also rallied.
But concerns lingered, including questions about how quickly aid could be disbursed, and that knocked the currency back to around $1.28.
"From a global perspective, the package provides breathing room for other countries that have transgressed on fiscal matters and should give more time to get their house in order," said Alan Ruskin, chief international strategist at RBS Securities in Stamford, Connecticut.
But it "will do no more than pad the euro downside against a sharp collapse rather than turn it around," he said, adding the euro is still headed to "the low $1.20s by late summer."
The euro hit a session high of $1.3093 Monday, according to Reuters data, before easing to $1.2803, up about 0.3 percent. It rose 1.8 percent to 119.29 yen after last week hitting its lowest level since 2001. The dollar also added 1.8 percent to 93.210 yen.
Sterling rose 0.4 percent to $1.4866 but retreated from a session peak above $1.50 after British Prime Minister Gordon Brown said he would resign as Labour Party leader to increase the party's chances of forming a new government with the Liberal Democrats.
Labour finished second in last week's inconclusive UK election, and the Liberal Democrats were already in talks with the poll's top vote-getter, the Conservatives.
The pound hit one-year lows of $1.4475 last week for fear political stalemate will hamper efforts to tackle the UK's public deficit.
PRESSURE REMAINS
The bailout includes contributions from the International Monetary Fund. Meanwhile, the U.S. Federal Reserve reopened currency swap facilities with other major central banks on Sunday to ease market strains in Europe.
But even with Monday's gains, the euro is still down 10.5 percent this year, making it the worst performing major currency.
"There are still some questions about the sustainability in the medium term," said Robert Lynch, currency strategist at HSBC in New York, "because you're simply borrowing more money to meet upcoming obligations, and it doesn't necessarily address the root causes of the problem."
Prices of Greek and other government bonds rose sharply on Monday as the European Central Bank began buying the debt in the open market, fulfilling its role in the bailout.
In the long run, though, analysts said that would increase the supply of euros and keep euro zone interest rates low. That would pressure the currency, particularly if the Fed lifts U.S. interest rates as expected later this year.
As of May 4, speculators were still making record large bets against the euro, according to data from the Commodity Futures Trading Commission.
As those bets unwind in the near term, the euro could hit $1.3490, said Ashraf Laidi, chief market strategist at CMC Markets. But he said doubts about whether Greece can implement promised budget cuts and whether Spain's ability to roll over short-term debt suggest "a protracted retreat towards $1.23, followed by $1.17" by the third quarter. (Reporting by Steven C. Johnson and Wanfeng Zhou; Editing by Kenneth Barry)