July 21 (Bloomberg) -- Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they risked a temporary default to ease Greece's debt burden and erected a firewall around Spain and Italy.

Spooked by a bond market selloff last week, leaders empowered their 440-billion euro ($633 billion) rescue fund to buy debt across stressed euro nations after eight hours of talks in Brussels. The fund can also aid troubled banks and offer credit-lines to repel speculators. Leaders pledged a 160 billion euro aid package for Greece, eased the terms of its existing loans and cajoled bondholders into footing part of the bill.

The euro strengthened as officials drew concessions from Germany and the European Central Bank for a twin-track strategy to support Greece and ensure its woes don't spread. The Brussels summit is the latest in a running-battle to resolve and contain the crisis amid calls this week for tougher action from U.S. President Barack Obama and the International Monetary Fund.

"These measures are welcome because they create the best possible conditions for Greece and other peripheral countries to put their houses in order and hence limit the risk of contagion," said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. "Still, the market will continue to price some probability that troubled countries will not be up to the challenge. Implementation risks to debt reduction are still considerable."

David Fuller's view To paraphrase the immortal Mark Twain:

Rumours of the euro's demise have been greatly exaggerated.

This was bold action by the EU and we can expect some further short covering in the near term.

Implementation is everything in terms of confidence and the market's medium-term verdict will be all-important.