The Swiss central bank will supply substantial liquidity to the merged bank, it said at a news conference in the Swiss capital, Bern. It said the deal marked a solution to secure financial stability and protect the Swiss economy in an exceptional situation.

MARKET REACTION:

* Early traded prices of the euro suggest the single currency was rising on the back of the news. The euro was last quoted at around $1.07, up around 0.4% on the day.

Last week:

* European banks slid almost 12%, their biggest weekly drop in just over a year. Japanese banks fell almost 11%, their biggest weekly drop since the March 2020 COVID-induced market turmoil. U.S. bank shares have notched up double-digit losses for two straight weeks.

* Two-year U.S. Treasury yields fell 74 bps, their biggest weekly drop since 1987. Two-year German bond yields slid 64 bps -- their biggest weekly drop since 1992.

COMMENTS:

HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG, LONDON

"They've (Swiss authorities) seen a problem, are dealing with it and that's a very positive sign for markets.

"That doesn't meant that it's all over but there's no need to panic. The relief for market is that systemic risk is contained."

MICHAEL BROWN, STRATEGIST, TRADERX, LONDON

"The early signs are that it is steading things a little, as you would expect. FX pricing is starting to filter through and - although it's the most illiquid market in the world and it's likely just Wellington in New Zealand trading - the pound and the Aussie dollar are a bit firmer.

"The yen is softer to a similar degree, so the FX market is singing a bit of a 'risk-off' song".

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST AT ALLSPRING GLOBAL INVESTMENTS

"It seems like a very large and decisive intervention. Provided markets don't sniff out other lingering problems, I'd think this should be pretty positive. Governments are intent on snuffing out the spark of contagion before the flames get out of control.

"The key now will be consistency: their actions set a precedent. The inconsistent treatment of Lehman Brothers versus Bear Stearns threw gas on the financial crisis. Now we have to wait and see how US officials treat regional banks."

"The CS/UBS deal should be good enough to improve sentiment, but there will still be lingering questions about regional banks in the U.S. and whether there are hidden risks in European banks. There is always something to worry about"

MAX GEORGIOU, ANALYST, THIRD BRIDGE, LONDON:

"Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry. These events could alter the course of not only European banking but also the wealth management industry more generally."

(Reporting by the finance and markets team; Compiled by Dhara Ranasinghe, Editing by Tommy Reggiori Wilkes)