Tokyo shares rose 1.71 percent on Monday after US President Barack Obama announced that he and top lawmakers had reached an 11th-hour deal to avert a potentially disastrous debt default.

At 0100 GMT the Nikkei 225 index at the Tokyo Stock Exchange rose 167.29 points to 10,000.32.

The dollar briefly rose above 78 yen in Tokyo trade following Obama's comments. At 0103 GMT the greenback fetched 78.03 yen from 76.73 yen in New York Friday, before easing back to 77.82.

"I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy," Obama said in hastily announced remarks at the White House.

In the US Congress, leaders of the Democratic-held Senate and the Republican-led House of Representatives said they would present the framework to their rank-and-file on Monday ahead of final votes to approve the deal.

The US government hit its debt limit in May and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally -- but can only do so through August 2.

Business and finance leaders have warned that default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 percent in the wake of the 2008 global meltdown.

"The debt-ceiling issue had been disturbing the market and spawned risk aversion since last week," noted Kazuhiro Takahashi, a general manager at Daiwa Securities' investment strategy and research.

"As President Obama announced a deal, lost ground is being regained," he said.

However, he added: "This is not a factor that makes investors picture higher growth for the US economy. The market is reacting to the fact that what should have been settled earlier has finally been done so after a political game."

The Dow Jones Industrial Average sank 0.79 percent on Friday, weighed down by data showing the US economy saw weaker-than-expected 1.3 percent growth in the second quarter after 0.4 percent in the first, and nervousness over the debt-ceiling battle in Washington.

Shares of Japanese banks that hold a large amount of US Treasurys were higher as concerns waned over possible US credit downgrades that might have been triggered by a US debt default, dealers said.

Earnings results from the big banks released Friday after the market close were also supportive.

Mitsubishi UFJ Financial Group was up 3.8 percent at 407 after posting a record group net profit for the three months ended June 30. Sumitomo Mitsui FG was up 2.8 percent at 2,502, and Mizuho FG gained 2.4 percent at 130.