TOKYO: Stocks in Tokyo closed 1.50 per cent higher Friday, above 9,000 points, following news from Europe that leaders had struck a deal aimed at bringing down borrowing costs in the debt-stricken continent.

The Nikkei 225 added 132.67 points to 9,006.78. The Topix added 11.27 points to 770.08, a jump of 1.49 per cent.

EU president Herman Van Rompuy said the eurozone would make a more “flexible” use of its rescue funds in order “to reassure markets and to get again some stability around the sovereign bonds of our member states.”

Such action would be reserved for “well-behaving” nations, he said.

Facing soaring interest rates, Italy and Spain had blocked an EU growth pact until their partners yielded to their demands to use the rescue funds to buy bonds in the markets.

The news gave a huge boost to stocks in Tokyo after a lacklustre morning that had seen the Nikkei 225 index give up 0.13 per cent, or 11.21 points, to 8,862.90 by midday, while the Topix index of all first-section shares rose 0.26 per cent, or 2.01 points, to 760.82.

Wall Street had set the tone with the Dow Jones Industrial Average closing down 0.20 per cent, or 24.75 points, at 12,602.26 on Thursday, after having been off by more than 170 points during the session.

The recovery from early losses in the last hour of New York trade came amid short covering and hopes that EU leaders would agree measures to stem the eurozone crisis.

Japanese government data released 10 minutes before the opening bell gave a mixed picture.

Industrial production in May fell by a bigger-than-expected 3.1 per cent from the previous month, while the jobless rate dropped to 4.4 per cent in May from 4.6 per cent in April.

Meanwhile, consumer prices in Japan slid 0.1 per cent year-on-year in May, the first decrease since January, confirming the country still has to wait to get out of the deflationary trap that has plagued it for years.

But household spending jumped 4.0 per cent in the month from a year earlier, outpacing economists' expectations for 2.3 per cent growth.

Expectations were high for the afternoon session after Italy and Spain lifted their objections to a $150 billion growth pact after more than 13 hours of intense talks during which the two countries tied their support for the pact to mechanisms to lower their borrowing costs.

That news boosted the euro, which surged to $1.2608, climbing about 1.34 per cent from $1.2449 in morning Tokyo trade, while it also rose against the Japanese currency to 100.14 yen from 98.60 earlier Friday.

The dollar was changing hands at 79.42 yen in Asian afternoon trade, slightly down from 79.45 yen in New York late Thursday.