* Greece asks for emergency aid
* Markets rally but see more problems
* European equities up 0.8 percent; spreads narrow; euro up
* German business sentiment jumps to highest since May 08
* Wall Street seen opening up 0.3 percent
By Claire Milhench
LONDON, April 23 (Reuters) - The euro rose from one-year lows on Friday and European shares bounced in a relief rally as Greece activated an emergency aid deal, but concerns over the country's longer-term financial health capped gains.
Wall Street looked set to open higher and spreads between Greek and spreads between Greek and German government bonds narrowed.
Prime Minister George Papandreou's 1100 GMT announcement that Athens was activating the EU/IMF bailout package had been trailed by Greek media and was largely factored in during morning trading.
Daragh Maher, deputy head of FX strategy at Credit Agricole CIB said it was a positive development in the short term, but in the longer term little more than a "sticking plaster".
"We aren't really much further into solving the problem," added Peter Chatwell, strategist at Credit Agricole CIB.
"We need to know how much Greece will get and when, so uncertainty will continue to be a problem, hence no major (market) reaction since the formal announcement."
With liquidity in Greek bonds practically dried up and the yield on a two-year Greek paper indicated above 10 percent, market players had predicted that the debt-ridden country had little alternative to seeking financial aid.
"It does not come as a surprise," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. "(But the aid request) still has to go through national parliament and we do not know what the reaction of Germany will be."
Following the request, the cost of insuring Greek debt from default eased, with the 5-year credit default swap narrowing to 584.9 basis points from 634 basis points, according to CMA DataVision.
The FTSEurofirst 300 index of top European shares held on to gains of around 0.8 percent, having rebounded earlier in the day from a three-week closing low as world stocks as measured by MSCI erased losses to be up 0.1 percent.
IFO BOOST
European shares were also boosted by a much better than expected German business sentiment survey from Munich-based think tank Ifo, which climbed to 101.6 from an upwardly revised 98.2 in March.
Shares in Volvo soared over 11 percent after the world No. 2 truck-maker's first-quarter profit beat expectations.
Financial shares were up 0.8 percent.
The euro clawed back ground against the dollar following the Greek announcement, and was up 0.1 percent on the day at $1.3303.
It had hit a one-year low of $1.3201 earlier in the session, hammered after the downgrade of Greece's sovereign rating by Moody's on Thursday. This had intensified pressure on the Greek government to accept the EU/IMF aid, worth up to 45 billion euros ($60.5 billion).
(Additional reporting by Ian Chua, Simon Falush and Naomi Tajitsu, editing by Mike Peacock, John Stonestreet)