The reassurances offered some relief to riskier assets, allowing investors to take profit on heavy gains made in recent weeks in the German government bond market.

But analysts were only too aware of the slew of obstacles still facing the euro zone.

Greek credit default swap prices were showing an above 90 percent chance of a default, according to Reuters calculations based on Markit data.

"The decision by the ECB and the rest of the G7 and Swiss central banks to provide that dollar liquidity ... basically re-emphasized the trend that was already in place," said Marc Oswald, strategist at Monument Securities.

Major central banks around the world will cooperate to offer three-month US dollar loans to commercial banks in order to prevent money markets from freezing up because of Europe's sovereign debt crisis. .

But Ostwald added: "The euro zone debt crisis is still absolutely alive and well and (the market) could easily turn around," he said.

The German Bund future saw a settlement close of 135.99, down 88 ticks on the day, as European stocks rose. It hit a two-week low at 135.12 after the central banks' announcement.

In a joint statement in Paris and Berlin, French President Nicolas Sarkozy and German Chancellor Angela Merkel urged on Wednesday Greek leaders to implement the terms of a bailout plan while saying they were determined to keep Greece in the euro zone.

Lenders have threatened to withhold the funds without fiscal reform. A Greek minister has said the country has funds until October.

Meanwhile sluggish US data could also limit the downside for government debt markets. New claims for US jobless aid unexpectedly rose last week and factory activity along much of the Eastern seaboard contracted early this month.

SPANISH SALE

Spain successfully navigated its latest test of investor demand, selling 3.95 billion euros of bonds in sales that brought above-average demand and allayed fears of a repeat of Tuesday's weak Italian debt auctions.

"It's encouraging they were able to exhaust the range, something which Italy was not able to do on Tuesday. (But average yields) are at uncomfortable territory ... It would be much better to get them lower, and they are ECB-influenced so it's as good as it gets," said David Schnautz, strategist at Commerzbank.

Despite the European Central Bank's attempts to bring yields down to more manageable levels by buying debt in the secondary market, the auctions came at a high cost. Each of the three lines tapped came at an average yield near or above 5 percent.

In the secondary market, 10-year Spanish yields were 4.2 bps higher on the day at 5.42 percent in after-hour trading.

France later sold nominal and inflation-linked paper worth a total of 9.8 billion euros. Opinions were mixed on the sale, with some suggesting recent worries over the health of the French banking sector had curbed investor appetite.

Copyright Reuters, 2011