European leaders have agreed to use the euro currency bloc's bailout fund to directly boost the continent's struggling banks — a move that immediately eased surging borrowing costs for debt-ridden Italy and Spain.

Stock markets in Asia, Europe and the U.S. jumped sharply Friday after European Union summit leaders decided that they could send loans to distressed banks directly, rather than through national governments, as has been the practice. The move was designed to keep the bank loans off the governments' mounting list of debts, such as a $125 billion rescue Spain is seeking for its banks, and make the financial institutions responsible for repaying their debts.

Borrowing costs for Italy and Spain, the 17-nation eurozone's third and fourth largest economies, had surged in recent days, especially for Madrid. Interest rates neared the level at which Greece, Ireland and Portugal all were forced to secure international bailouts, raising new fears about the fate of the euro.

But after the EU altered its lending plan, interest rates for Italian and Spanish bonds both dropped. Stocks closed sharply higher in Asia and Europe, with U.S. indexes also showing significant gains in afternoon trading.

The EU summit also agreed to create a single supervisor to oversee the eurozone's banks by the end of 2012 and move toward a “genuine monetary union.” Greater financial integration in the eurozone could eventually lead to tighter central control of spending by the 17 governments, which has been sought by Germany, the currency bloc's most robust economy, and the sale of eurobonds, debt supported by the entire currency union.

Some European countries view the sale of eurobonds as a path to lower borrowing costs for weaker governments, but Berlin fears its low borrowing costs would increase.

The EU leaders also agreed to set aside about $150 billion to stimulate growth in the bloc's weakest economies. The so-called “growth pact” was initially rejected by Spain and Italy, who held out until they won agreement on their demands.

French President Francois Hollande applauded the actions taken at the summit.

“Firstly, we defined growth measures, that was the first, indispensable stage, and after that (we discussed) short-term action to find answers to give liquidity and protection and facilities, and finally, define a medium- and long-term vision on banking supervision. I think we are looking at the future in the best possible way, and that means having a vision and also taking immediate measures.”

German Chancellor Angela Merkel was more reserved in her reaction.

“I think we've done something important, but still remained faithful to our philosophy, 'There is no service without a service in return.' Thank you.”

European Council President Herman van Rompuy hailed the agreement during a press briefing after the meeting.

“We agreed on something new, which is a breakthrough that the banks can be recapitalized directly in certain circumstances and the biggest of the most important condition is that we have to put in place a single supervisory mechanism, and second decision is that we are opening the possibilities to countries who are well-behaving, that we are opening the possibilities to make use of financial stability instruments ESFS, ESM in order to reassure markets.''