European leaders have agreed to support British-backed back changes to the EU stability and growth pact.

Tony Blair and counterparts were gathering in Brussels on Tuesday for a two day European Council set to rubber stamp changes agreed by finance ministers over the weekend.

Other issues set to be discussed included the Lisbon agenda for economic reform and sustainable development.

But top of the agenda were the changes to the pact governing membership of the single currency, which Britain has long been campaigning to make more flexible.

The rules currently restrict the amount of money a euro member can borrow to finance debt or public spending in a bid to keep economies in line with each other.

Chancellor Gordon Brown, who was in Brussels along with Blair, foreign secretary Jack Straw and trade secretary Patricia Hewitt, has made reform a pre-requisite of British entry into the euro.

He has argued that the "one size fits all" pact needed to be relaxed to allow national governments more freedom and take borrowing over the economic cycle into account.

The UK was set to see its wishes largely met as the rules are altered to exempt members from fines - which have rarely been enforced - in the short term as long as breaches are not in direct conflict with the wider economic goals of the EU.

Ahead of the summit the prime minister's official spokesman said: "We have always intimated we believe there should be flexibility in the growth pact and it should be reformed to take account of the economic cycle."

China

Number 10 was also pressed on Tuesday on the reported rift between Europe and the US on plans to life the EU's arms embargo on China.

The prime minister's spokesman said the government was still confident a consensus could be achieved, but denied Britain was pushing for a delay after China passed a new law allowing for an attack on Taiwan.

He pointed to quotes from EU foreign policy chief Javier Solana who said "this is a difficult and complex issue both in substance and timeline".

Downing Street said an enhanced code of conduct on arms sales could offer a resolution to the row.

"The EU's position is that we are in discussion with the US," the spokesman said.

"They are EU discussions, not UK-led discussions. The UK's position is that we want consensus in the EU about this. We believe an EU code can meet US concerns."

However foreign secretary Jack Straw acknowledged continued human rights problems and the new law had "created quite a difficult political environment" for the lifting of the embargo.

Conservative spokesman Michael Ancram said: "Lifting the embargo fails all three of the government's criteria."

Rebate

However Downing Street was forced to deny that Britain's EU budget rebate would be on the negotiating table.

EU Commission president Jose Manuel Barroso said over the weekend that members would "have to find a way" to share the £3bn annual discount negotiated by Baroness Thatcher around other net contributors and poorer new members in Eastern Europe.

"Let me be frank. We are in a very different situation from 20 years ago," he told the BBC.

"Now we are 25 members, at that time we were 10. Now those new members are much, much poorer than the former ones.

"And Britain on the other side is much more prosperous today than it was 20 years ago, let's be also frank about it."

"We have to find a way through, to accommodate the legitimate concerns of Britain, but also to accept that the situation now is very different."

Number 10, which is understood to have put negotiations off until after the expected general election in May, insisted the rebate was not on the agenda for this week's summit.

"We have made our position clear on the rebate. We stand ready to argue that position as we have done in the past. The position has not changed," the spokesman said.