* Initial euro, share rally on Ireland bailout short-lived
* Euro zone contagion fears linger
* Ireland yields, CDS drop, yield spreads narrow
* Investors cautious, euro zone, U.S. concerns remain
By Naomi Tajitsu
LONDON, Nov 22 (Reuters) - The euro pared early gains while European shares slipped on Monday as initial euphoria over Ireland's request for a debt bailout fizzled.
Riskier assets gave up gains and reversed course on concerns that other euro zone countries may need similar help, and after Ireland's junior party called for an election, prompting concerns about political instability in the country.
Ireland's news initially whetted investor appetite for higher-risk currencies, stocks and commodities, while boosting Irish government debt prices on the view that the latest episode in the euro zone debt saga has been contained.
World shares pulled back from an early rise, while U.S. shares were poised to open slightly lower.
"The deal was inevitable ... but there are still hurdles ahead for other countries, particularly next year," said Nick Stamenkovic, rate strategist at RIA Capital Markets.
The cost of insuring against an Irish sovereign default tumbled in early trade and its two-year government bond yield dropped as Dublin outlined austerity measures to the European Union and the IMF in return for loans to shore up its crippled banking sector.
Market participants say Portugal may be the next country forced to seek a bailout, which could reignite concerns about the stability of the euro zone.
Some analysts say that in the unlikely situation that no more bailouts are needed, concerns about the region will remain elevated due to pressure on euro zone economic growth resulting from the rescue packages laid out for Greece and Ireland.
"Even assuming the best case scenario of no further bailouts, the necessary adjustments required to rectify internal imbalances in the euro zone are deeply deflationary and will quickly become evident by the under-performance of the euro zone economy," BTM UFJ analysts wrote in a note.
By 1216 GMT, the euro was flat on the day at $1.3689, pulling back from the day's high of $1.3786. The safe-haven dollar slipped 0.1 percent versus a currency basket.
Last week, markets had been awash with expectation that Ireland would be able to secure debt assistance, which had triggered a recovery in the euro after it was sold off earlier this month.
LINGERING EURO ZONE, US ISSUES
World share prices rose, nudging the MSCI world equity index up 0.1 percent, although the index pared gains after Ireland's Green Party called for a January election.
European shares fell 0.5 percent following the announcement, relinquishing early gains. U.S. stock futures slipped 0.1 percent.
The two-year Irish government bond yield fell as much as around 50 basis points, while benchmark 10-year yields fell more than 20 basis points. Five-year Irish CDS prices fell 35 basis points to 470 basis points.
Irish debt yields continued their retreat after rocketing to the highest in the history of the euro zone earlier this month when concerns about Ireland's debt problems resurfaced, sowing doubts about the stability of the euro zone.
Gains in periphery bonds put selling pressure on German debt, widely considered to be the most stable in the euro zone. A rise in benchmark 10-year German bonds helped to further narrow the spread against its Irish counterpart.
Commodities gained, but pulled back from an early rise. Ooil prices were up 0.2 percent at $82.14 per barrel, after climbing 1 percent.
Investors were hesitant to get too excited about the risk rally as euro zone fiscal problems were expected to continue, while questions remain about whether the U.S. Federal Reserve's latest round of quantitative easing will work.
The Fed earlier this month said it would buy more U.S. Treasuries in an effort to boost market liquidity, but this has not yet led to significant dollar weakness and lower Treasury yields, as some in the market had been expecting.
Market participants said they would be wary of taking big positions in either direction on risky assets until they get a clearer picture of whether the second round of QE will be successful, and whether more euro zone bailouts will be needed.
"Both the U.S. and European situation will remain until the year end and so volatility will remain elevated," said Thanos Papasavvas, head of FX management at Investec.
"We don't expect any significant rally in risk from here nor a significant shock to the downside. We'll probably remain in range for now," he said, adding that he expected the euro to be hemmed in a $1.30-$1.40 range for now.
Others in the market say that China's ongoing moves to tighten monetary policy -- the latest of which was a rise in banking reserve requirements late last week -- will also cool expectations of how much the global economy will grow. (Additional reporting by Kirsten Donovan; Editing by Hugh Lawson)