Nikkei drops 1.5 pct, markets wary of euro zone debt crisis

* Nikkei slumps after EU agree on fiscal pact, falter on treaty

* Lack of ECB action disappoints markets

* Nikkei tests 25-day moving average

* Investors dump cyclicals amid uncertainty

By Mari Saito

TOKYO, Dec 9 (Reuters) - Japan's Nikkei average fell on Friday and tested key support at its 25-day moving average after European leaders' agreement for fiscal integration failed to boost investor confidence about the euro-zone debt crisis.

Trade volume spiked on the Tokyo exchange's first section to 2.57 billion shares, up 77 percent from its six-day average due to settlement of December futures and options in a closely watched major "SQ" special quotation. The Osaka Securities Exchange said after the close that Nikkei futures were settled at 8,478.46.

In Europe, leaders sealed a new fiscal pact for tougher budget discipline in a 10-hour meeting in Brussels on Friday, but failed to persuade all 27 member states to agree a treaty change. The European Central Bank, while cutting interest rates as expected, stopped short of committing to more bond buying.

"Except for the fiscal integration, not a single thing was decided and it was all announced in very vague, political talk. In the end, there was no real development," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley.

Market participants said most investors were focused on the ECB, and its failure to commit to further bond-buying dashed hopes and pushed global stocks lower.

The Nikkei dropped 1.5 percent to 8,536.46, losing 1.2 percent for the week after logging a weekly gain of almost 6 percent last week. It slipped below its 75-day moving average of 8,633 and briefly broke below another major support at its 25-day moving average, now 8,523.

A break there could open the way for a test of 8,500, a 38.2 percent retracement of its rally to a four-week high that started in later November, and 8,430, a 50 percent retracement of that rally.

The broader Topix index shed 0.9 percent to 738.12.

"If the Bank of Japan doesn't step in to buy exchange-traded funds in the afternoon, which is probably unlikely, there will be desperate selling and further adjustments on Monday," said Fumiyuki Nakanishi, general manager of SMBC Friend Securities' investment research department.

Nakanishi said tanking Asian stocks also weighed on the Nikkei. The MSCI index of Asia-Pacific stocks outside Japan lost 2.3 percent.

CYCLICALS FALL

Shippers, which made healthy gains in the market's rally until the middle of this week, fell sharply, with the Tokyo Stock Exchange's shippers subindex down 2.3 percent.

Market players dumped cyclical shares in light of uncertainty in Europe, saying they were waiting for next week's Federal Reserve policy meeting and any more signs of policy easing by China's central bank.

Tokyo Electric Power Co gained 1.2 percent to 247, recovering some of the previous session's losses after Japan's trade minister said on Friday that no arrangements were being made to inject public funds into the struggling operator of the Fukushima nuclear plant, the source of a radiation crisis triggered by the March 11 earthquake and tsunami.

Chemical maker Teijin rose 1.2 percent to 246 yen after a report it had signed an agreement with General Motors Co to jointly develop carbon fibre automobile parts.

Declining stocks outnumbered advancing issues 950 to 553.