European leaders have clinched a deal on a new 'growth pact' of measures worth some 120 billion euros ($149.3 billion) to breathe life into floundering economies, EU president Herman Van Rompuy said.

'What we already agreed is... to boost the financing of the economy by around 120 billion euro for immediate growth measures,' he told reporters on the first day of a two-day European Union summit.

European finance officials were working on urgent measures to ease financial market pressure on Spain and Italy, which are too big to bail out, said a report in our sister publication, the Gulf Daily News.

French President Francois Hollande said on arriving at his first full European Union summit after six weeks in office that he expected agreement on emergency steps to help euro zone partners whose borrowing costs had reached unsustainable levels.

'I have come here to get very rapid solutions to support countries in the greatest difficulty on the markets even though they have made considerable efforts to restore their public finances,' Hollande said.

Three EU sources said work was focused on using the euro zone's temporary EFSF rescue fund and a future permanent ESM bailout fund to buy new Spanish and Italian bonds as they were issued to underpin their bond auctions.

Rome and Madrid have been pleading for help but have received a cool response from Berlin and other capitals. The funds will have a maximum firepower of 500 billion euros ($625 billion) once the ESM is fully stocked in 2013, minus 100 billion euros already earmarked to aid Spanish banks. The sources said an agreement could be clinched at a meeting of the 17 euro zone leaders today after the regular 27-nation EU summit ends.

'We've got to look at existing instruments, and both the EFSF and the ESM, once it is active, have the capacity to buy bonds in the primary market. That's the area that makes sense to operate on,' one official said.

Italy and Spain would still have to request assistance, which they have been loath to do, and would be subject to fiscal policy conditions and international monitoring. But they might not be required to do more in austerity and structural reforms than they have already undertaken, the sources said.

Dutch Prime Minister Mark Rutte, leader of one of the most hardline north European creditor countries, said the euro zone could use its existing tools to solve the market problem.

It was the 20th EU summit since the still-widening euro zone sovereign debt crisis began in early 2010 after Greece disclosed its public deficit was far higher than previously reported.

Reflecting public anxiety about the future of the single currency, European Parliament president Martin Schulz told the summit: 'Today, people throughout Europe are casting worried eyes towards Brussels, towards this summit meeting, because they fear that our European project is one step away from disaster'.

Positions were so far apart that even before yesterday's meeting began EU sources said there was the prospect of another summit next month to try to bridge the differences.