The deal, vetoed by Britain, was short on any immediate measures to stem the euro zone debt crisis, but the 17 euro zone nations, with others that aspire to join the group, resolved to negotiate a new agreement alongside the EU treaty to try to halt a slide in economic confidence that threatens recession.

"They've sent a strong political signal," said Sony Kapoor managing director at Brussels-based think-tank Re-Define.

"If they (euro zone countries) are willing to go this far, if they are willing to sacrifice national sovereignty, this is a signal of their commitment to the euro," he said.

Debt markets greeted the news warily with interbank lending rates easing and short-dated Italian bond yields coming off their highs. However, German bund yields rose slightly and U.S. Treasury yields stayed close to 2 percent.

U.S. stock index futures pointed to a slightly higher open for equities on Wall Street, with futures for the S&P 500, the Dow Jones and the Nasdaq up between 0.1 to 0.4 percent.

CHINA INVESTMENT

The euro gradually strengthened on the summit news and was later boosted when a source, who asked not to be named, told Reuters China's central bank plans to create a new vehicle to manage investment funds worth a total of $300 billion, part of which will be focused on investments in Europe.

The euro rose to a session high of $1.3422 after the China news emerged from around $1.3380 beforehand to trade with gains of around 0.5 percent for the day.

Europe's key stock index, the FTSEurofirst 300 .FTEU3, was up 1.1 percent and most other key European markets gained. But the widely watched MSCI world equity index .MIWD00000PUS was virtually unchanged.

Market participants suggested the moves reflected relief that any long drawn-out treaty ratification had been avoided, and traders said the European Central Bank had buoyed sentiment by buying Italian bonds on the open market.

"Fiscal discipline can't be achieved overnight and in the meantime, credit contraction will intensify, so the most urgent task for policymakers is to ensure decisive measures are taken to put a firm cap on bond yields and relieve funding pressures," said Takeo Okuhara, a fund manager at Daiwa SB Investments in Tokyo.

"The headlines stepped up more pressure on the European Central Bank to expand its bond purchases and to have common euro zone bonds as these are the only ways to contain the debt crisis from falling into a negative spiral," he said.

At the heart of markets' concerns are worries that there is no sign of a deal that would allow the ECB to intervene more heavily to quell the crisis. The bank's President Mario Draghi knocked back talk of a number of possible mechanisms for allowing it or the euro zone's national central banks to do so at the ECB's monthly post-rate decision news conference on Thursday.

Elsewhere Europe's main banking sector index, the STOXX Europe 600 .SX7P, was higher despite ratings agency Moody's downgrading BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA), and Credit Agricole (CAGR.PA), saying their creditworthiness was being hurt by the fragile operating environment.

In a further sign that Europe's debt crisis is undermining global growth, China's industrial output growth dropped in November to its slowest pace in more than two years and inflation tumbled as economic conditions deteriorated, raising expectations that Beijing will pursue a more pro-growth policy to support jobs.

(Editing by Ruth Pitchford)