ASIAN shares rose on Monday with sentiment brightening at the start of the third quarter after European leaders agreed to shore up the region's troubled banks, but the euro gave up some of its gains amid concerns that the debt crisis is still far from over.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0,5%, after soaring 2,7% on Friday for its biggest one-day rise in more than six months. The MSCI Asia ex-Japan share index ended April-June down 7,4%, after rising for the previous two quarters.

European shares were likely to mostly rise marginally, with spreadbetters predicting that region's major markets would open up as much as 0,3%. US stock futures were down 0,2%.

Japan's Nikkei average trimmed early gains to stand up 0,4%, but kept above the key 9000 level, which it reclaimed on Friday for the first time in seven weeks.

Strong short-covering spearheaded Friday's broad-based rally as market players who had not expected European leaders to strike any fresh deals scrambled to cover negative bets, and fund managers remained cautious of the sustainability of "risk-on" momentum.

"Even though markets went up significantly on Friday night, we are still fairly cautious as to whether that's a sustainable move, given that the announcements from the summit were probably better than the actual detail of what's been delivered," said Andrew Pease, Sydney-based chief investment strategist at Russell Investments Asia Pacific.

The euro fell 0,3% to $1,2627, after spiking 1,7% against the dollar to a high of $1,2693 on Friday, its biggest one-day jump in eight months.

"Their agreement offered a direction but details are yet to be worked out, and that will limit the euro's upside," said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo. "Still, with concerns over the euro zone's debt crisis easing for now, the focus this week turns to US data, including the monthly jobs report."

The dollar eased 0,1% to 79,76, after a closely watched Bank of Japan survey on Monday showed big Japanese manufacturers' sentiment improved in the second quarter from the previous quarter.

FUNDING CAPACITY CONCERNS

Euro zone leaders agreed on Friday to let their rescue fund inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states.

The step relieved credit market strains that had threatened to force struggling Spain into seeking an international bail-out, pushing Spanish and Italian debt yields sharply lower.

European Union leaders also pledged to create a single banking supervisor based around the European Central Bank in a landmark first step towards a European banking union.

But Russell Investments' Andrew Pease and others were less than convinced that the agreement would be implemented smoothly, paying particular attention to the size of rescue funds which they see as insufficient to bail out needy member states.

"There's still a long way to go and the sorts of things that

we would need to make us confident that Europe is no longer a huge hindrance on markets is a credible plan to provide a liquidity backstop for sovereigns and a big enough fund to convincingly recapitalise banks across the region," Pease said.

The EU's joint statement said that the eurozone's temporary EFSF and permanent ESM rescue funds would be used "in a flexible and efficient manner in order to stabilise markets" to support countries that comply with EU budget policy recommendations.

"In theory if these funds were sufficiently capitalised there would be cause for celebration. Unfortunately, they are not sufficiently capitalised and therefore their is no cause for celebration," said Jeff Sica, president of SICA Wealth Management, which manages more than $1 billion in client assets, real estate and private equity holdings.

"The irony of this ... is that those intended to fund it are the very ones who need it."

Reuters