ATHENS, Greece (AP) -- Greece's second and third largest lenders, Eurobank and Alpha Bank, on Monday announced plans to merge in order to better withstand the country's acute financial crisis.

The widely anticipated move would create Greece's biggest bank, and will see a (euro) 500 million ($720 million) investment from a Qatari investment fund, Paramount Services Holding Ltd., officials from the two banks said.

The deal was immediately welcomed by the country's Socialist government and caused shares to surge on the Athens Stock Exchange. The banking sector as a whole was up 29 percent and National Bank of Greece, the country's largest lender, soared 30 percent.

The broader index in Athens was up 15 percent at 1,011.89 in afternoon trading, rebounding past the 1,000-point threshold three weeks after sliding below it.

Greece is in the throes of a major financial crisis, and only avoided bankruptcy after two international bailouts agreed over the past two years, worth a combined total of (euro) 219 billion ($315 billion).

The country remains cut off from bond markets because investors demand prohibitive rates to lend it money over the long-term _ the yield on the 10-year bonds is at 18 percent, compared with the benchmark German rate of 2.18 percent.

The Greek central bank and government have repeatedly urged banks to consolidate, arguing it will afford them greater protection from the fallout of the crisis.

``The decision by the two banks to proceed with a merger is a positive development,'' Finance Minister Evangelos Venizelos said. ``This initiative demonstrates that today's crisis could serve as a corrective opportunity and provide a boost in the financial sector as well as in the real economy.''

The deal, which requires regulatory approval, would create Greece's largest bank by assets _ some (euro) 150 billion ($216 billion) _ with (euro) 80 billion ($115 billion) in deposits.

The terms of the merger agreement include an exchange ratio of 5 new Alpha Bank ordinary shares for every 7 Eurobank EFG ordinary shares.

In February, Alpha rejected a takeover bid from National Bank of Greece, arguing that the proposed terms were not beneficial to its shareholders.

``At a time when it is hoped Greece will experience the first signs of a recovery through the implementation of reforms and the support of its European partners, the new bank will aim to contribute to the resumption of growth in Greece and our country's connectivity with its neighboring markets in Southeastern Europe,'' Alpha Bank chairman Yannis Costopoulos said.

The banks plan to conclude the merger by mid-December, creating a joint network of more than 1,300 branches in eight countries, including Bulgaria, Cyprus, Romania and Serbia.

Alpha Bank has hired Citibank and JP Morgan as financial advisers, while Eurobank has employed Barclays Capital, Goldman Sachs International and Rothschild.