BRUSSELS (AP) - Greece would avoid paying back some of its billions in loans and a Europe-wide rescue fund would gain new powers to swiftly aid other debt-stricken countries under a sweeping deal being negotiated by European Union leaders Thursday in a last-ditch attempt to contain the continent's potentially devastating debt crisis.
Stocks, bonds and the euro rallied sharply on hopes the deal will be a turning point in the 18-month crisis, which has slashed the value of the single currency and forced Greece, Portugal, Ireland and Spain to cut billions from their national budgets.
A draft of the deal provided to The Associated Press said banks and other private business that own Greek bonds have agreed to contribute to the rescue of the country - language indicating they will accept being paid back more slowly or at lower interest rates.
This could happen through banks trading their current bonds to Greece for new ones that mature years later. The banks could also sell their bonds back to Greece at a loss.
Ratings agencies have long warned such measures would be seen as a form of Greek default on its loans, a first for a euro zone country and a potential cause of devastating loss of confidence in the other heavily indebted nations.
Markets appeared to be seeing the draft measures as less harmful than expected, however, fueling the rally.
"Greece is in a uniquely grave situation. This is the reason why it requires an exceptional solution," the draft says.
The draft deal, if approved, would also radically overhaul a bailout fund created last year to aid Greece as it found itself increasingly unable to sell bonds with the sharply higher rates demanded by investors frightened the country's stagnant economy would leave it unable to repay its debt.
The European Financial Stability Facility has loaned billions to Portugal and Ireland and has another 440 billion euros in reserve but has required emergency summits of national leaders to authorize new aid.
The deal would now allow it to intervene pre-emptively, before a country is in full-blown crisis mode.