Asian stock markets mostly advanced Thursday as better-than-expected economic data from the U.S. buoyed sentiment, but gains were capped as investors are being cautious ahead of the EU summit later in the day.

Japanese benchmark Nikkei surged 1.65 percent or 143.62 points to 8,874.11, South Korean Seoul Composite advanced 0.08 percent or 1.53 points to 1,819.18 and Indian benchmark BSE Sensex were trading flat while Hong Kong's Hang Seng fell 0.79 points and Chinese Shanghai Composite declined 0.95 percent.

Market sentiment improved overnight as better-than-expected reports on U.S. durable goods and pending home sales slightly eased worries that the world's biggest economy is losing momentum.

The latest data from the commerce department showed that orders for long-lasting U.S. manufactured goods rebounded in May as companies boosted their capital spending plans. Orders rose 1.1 percent, the first gain in three months, against a consensus forecast of a 0.4 percent increase and April’s 0.2 percent fall. Excluding transportation, orders rose 0.4 percent after falling 0.6 percent in April.

The National Association of Realtors' pending home sales index, a forward-looking indicator that looks at contracts signed for existing homes, stood near a two-year high in May, indicating signs of an improvement in the distressed US housing market.

Pending home sales jumped 5.9 percent in May compared to the previous month and beat an expected increase of 1 percent from economists polled by Reuters. The index was up 13.3 percent on annual basis and equated levels reached in March 2012 and April 2010, when a federal tax credit for first-time buyers was fueling demand.

Pending home sales data follow other recent reports, showing that U.S. home prices inched up in April and new home sales rose to a two-year high in May, fueling optimism that the distressed housing market which is linked to the health of the overall economy is poised for a recovery.

“There is a growing feeling that whatever is happening in the rest of the world, the U.S. is holding up quite well, Nicholas Smith, Japan strategist at CLSA in Tokyo, told the Wall Street Journal.

However, gains were capped as investors remained watchful before the European Union (EU) leaders' two-day meeting in Brussels on doubts that any substantial measures to solve the sovereign debt crisis may not be taken up in the summit.

German Chancellor Angela Merkel and French President François Hollande met Wednesday in Paris, where they are reported to have made some progress on reaching an accord to ascertain that economic growth momentum is regained. But differences do exist with Merkel supporting austerity measures and Hollander standing for greater emphasis on growth.

Japanese shares gained after official data showed that retail sales rose 3.6 percent year-on-year in May. Panasonic Corp. surged 2.10 percent and NTT Data Corp. surged 4.65 percent while Canon Inc. rose 1.14 percent.

South Korean shares gained for the first time in five days as shipping companies’ shares gained on higher freight rates. Hanjin Shipping Co Ltd. gained 1.8 percent and CJ Korea Express advanced 2.15 percent.

Hong Kong shares pared earlier gains and ended with losses ahead of EU summit. Cement companies shares fell after profit warning from China Resources Cement Holdings. China Resources Cement Holdings plunged 5.52 percent and Anhui Conch Cement Co Ltd fell 2.60 percent.

China Yurun Food Group slumped 12.73 percent to close at the lowest level since Oct 2006 after Chinese brokerage Shenyin Wanguo raised concerns about the company's inefficient financing arrangements, Reuters reported.