* European shares tumble although initial plunge trimmed * The euro and euro zone periphery bonds fall heavily * Safe havens gold and German government bonds rise By Marc Jones LONDON, March 18 (Reuters) - The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares, the euro and the bonds of struggling euro zone governments all tumbling. The bloc struck a deal on Saturday to hand Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings - including from the European Central Bank - and imposed a levy that will see those with cash in the island's banks lose between 6.75 and 9.9 percent of their money. Parliament in Cyprus was due to vote on the measure - which has shaken depositors' confidence in banks across the continent - later on Monday but with public anger at the deal widespread the government said it was already looking to reduce the impact on small savers. Without the rescue, Cyprus would have be unable to avoid a default. That would have undermined the promise that Greece's debt writedown last year was a one-off, but the unprecedented move to hit depositors adds a radical new dimension to the crisis across the euro zone. The response of investors was unambiguous as European markets reopened following the deal. Shares lurched lower, the euro fell to a new three-month low, while safe-haven assets such as gold and German government bonds jumped. Economists were also taken aback by the move but some took the view that safety measures in place at the ECB should contain the fallout. "Clearly this is a negative development for European assets but in the terms of contagion we think it is quite limited," said Guillermo Felices, head euro asset allocation at Barclays in London. "There are tools - such as the ECB's OMT (bond buying programme) and the option of more 3-year LTROs (ECB loans to banks) that can provide liquidity if needed - that the market will feel comfortable about when assessing the longer-term implications." Equity markets were underscoring the more immediate worries, however, that the Cyprus deal could see savers and firms in other highly indebted countries like Italy and Spain rush to pull money out of their own banks. By 1015 GMT the pan-European FTSEurofirst 300 had clawed back around half of its initial losses but was still down 0.7 percent in its worst morning since last month's inconclusive Italian election. London's FTSE 100 (FTSE: ^FTSE - news) , Frankfurt's DAX (Xetra: ^GDAXI - news) and Paris's CAC-40 were down 0.7, 1 and 1.1 percent respectively as traders' screens remained covered in red, leaving MSCI (NYSE: MSCI - news) 's global share index down 0.8 percent. DANGEROUS PRECEDENT The ECB's pledge to buy euro zone government bonds in unlimited amounts if needed has calmed the beleaguered currency bloc. But if investors fear the Cypriot template could be repeated in any future rescues, that calm could be shattered. In the currency market, the euro was down almost 1 percent at $1.2963 versus the dollar by mid-morning, having dropped as low as $1.2882 in the Asian session. The dollar itself, which investors often head for when tensions in Europe rise, gained 0.4 percent. "If this tax is levied it will set a precedent. It raises questions over whether other deposits will be safeguarded in other countries," said Jane Foley, senior currency strategist at Rabobank. "Euro zone politicians will be at pains today to manage down the danger of contagion to other markets. The euro will find a little bit of support from that but markets will remain jittery." Italian and Spanish bonds also dropped sharply in frenzied trading. The two countries remain the central concern of the euro zone's crisis due to the size of their economies which some economists warn would be too big to rescue. If savers and firms did pull their money en masse from already strained banks it could tip the region back into full blown crisis, although the ECB's backstop measures are designed to prevent such problems. The widespread anxiety drove up German government bonds, the traditional favourite of risk-adverse European investors, and indiscriminately pushed up the cost of insuring against a sovereign default in the euro zone's southern rim. Bund futures were up 70 basis points at 144.07 by mid-morning in Europe, while gold, another safe-haven asset, saw its biggest rise in a month as it jumped over 1 percent to $1,604 an ounce. Meanwhile U.S. crude and Brent oil both tumbled 1.1 percent to $92.46 and $108.62 a barrel respectively as commodity markets also reacted badly. Copper, which is also sensitive to global tensions, slid to a four-month low. "It's a Cyprus shock. The euro fell, and crude followed that lower," said Ken Hasegawa, a commodity sales manager at Newedge in Tokyo. "We don't know what's going to happen, and it's becoming an uncertain factor."