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Greek markets surge as Athens clinches bailout deal

By John Geddie

LONDON (Reuters) - Greek financial markets surged on Tuesday after Athens agreed a multi-billion-euro bailout deal with international lenders.

The deal, reached after marathon talks, is expected to be signed off by Greece's parliament and euro zone finance ministers this week to ensure Athens has enough cash to meet a chunky repayment to the European Central Bank on Aug. 20.

This would bring to a close a painful chapter of aid talks for Greece, which fought against austerity terms demanded by creditors for much of this year before relenting under the threat of being the first country to exit the euro zone.

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"It is not simply relief that we have finally arrived at a conclusive point, but that we have done so in time for Greece to meet their upcoming payment to the ECB," said Rabobank strategist Matt Cairns.

The new bailout is expected to be worth up to 86 billion euros ($94.75 billion) in fresh loans, but there was no immediate confirmation of its size.

Athens' benchmark ATG equity index, which has lost 15 percent since the start of the year, rose 1.2 percent, the only major European stock market to rise on the day, with all others reeling from China's surprise 2 percent devaluation of the yuan. (MKTS/GLOB).

The Greek banking index surged 6 percent, although it remains down by more than 60 percent year-to-date.

Greece's two-year borrowing costs dropped 4.29 percentage points to a five-month low of 15.16 percent.

An added bonus for investors is that the deal may pave the way for the ECB to begin buying Greek bonds under its landmark quantitative easing scheme, even if just for a short period.

However, the yield on Greece's two-year bonds, which moves inversely to prices, remains above those of longer-dated bonds - a sign that investors still fear the country may not escape future default.

"The economy in Greece is in recession so we could be in a situation in six to nine months where they are failing to make the progress necessary to get the disbursements and we run into another tense situation," said Martin van Vliet, senior rate strategist at ING.

"For now, many market participants are saying OK, there will be a deal on a bailout package so for the next couple of weeks the risk of default and Grexit has disappeared."

(Writing by John Geddie, reporting by Sudip Kar-Gupta and Marius Zaharia; Editing by Susan Fenton)