The euro surged in Asian trade on Friday after European leaders struck a deal on a $150-billion growth pact to shore up the Eurozone, and opened the door to wider use of rescue funds.
The single currency hit $1.2594 in afternoon trade, climbing from $1.2449 in morning Tokyo trade, while it also rose against the Japanese currency to 99.96 yen from 98.60 earlier Friday.
At one stage, the euro briefly tipped above the $1.26 and 100-yen level.
Traders were caught off guard by concrete news out of European Union talks in Brussels, which had widely been expected to yield few substantial measures to tame the Eurozone’s fiscal woes.
"Since there were low expectations from the EU summit, this news has come as a surprise," Masafumi Yamamoto, chief forex strategist at Barclays Capital in Tokyo, told Dow Jones Newswires.
The euro's rise came as EU president Herman Van Rompuy said the Eurozone would make a more "flexible" use of the rescue funds "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 added.
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, hurting the euro in morning Asian trade.
The direct recapitalization of banks could happen after "an effective single supervisory mechanism" is established, with the participation of the European Central Bank, Eurozone leaders said in a statement. Conditions would be attached to such direct aid, they said.
The leaders said the bank recapitalization proposals should be considered "as a matter of urgency" by the end of the year.
Madrid has requested aid for its struggling banks but the country wants to avoid taking in more debt.
"We affirm that it is imperative to break the vicious circle between banks and sovereigns," the statement said.
The dollar, meanwhile, rose slightly in Asian trade to 79.33 yen from 79.21 earlier Friday, but was still below its 79.45 level in New York on Thursday.
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