NISSAN'S North-East factory appeared to be on the brink of victory last night as the battle for the next Micra swung dramatically in favour of Britain.

The European Union has cleared the way for a £40m Government aid package for the plant, which is competing with a French factory for the new Nissan supermini.

And, last night, sources in Japan claimed the decision to award the Micra to Sunderland has already been taken.

Authoritative newspaper Nehon Keizai Shimbun said company sources in Tokyo had confirmed that the new Micra model would be produced in the UK.

The same sources claimed an announcement from Tokyo was only days away.

Politicians, manufacturers and union leaders welcomed the EU decision, but warned the fight was not over yet.

Secretary of State for Trade and Industry, Stephen Byers, said: "Nissan has made it clear that this is just one of a number issues that will influence its decision."

However, it seemed last night that Wearside had edged ahead of the Renault plant in Flins, near Paris, as the site most likely to be chosen.

Workers had feared the contract could go abroad because Renault, which formed a strategic alliance with Nissan two years ago, needs extra production for its own factories.

If the Micra remains in Britain it will be seen as a massive vote of confidence in the UK motor industry.

Government ministers are desperate for some good news after the American "big two" - General Motors and Ford - pulled the plug on car production in Britain. Both companies cited the strength of sterling as a factor in their decision.

Nissan has also urged the Government to take action on the strong pound. Company bosses have pressed ministers to embrace the European single currency.

Their case has been strengthened by the EU inquiry into the £40m aid package for Sunderland, carried out before the grant was approved.

It concluded that building the Micra on Wearside would be 30 per cent more expensive than doing so in France - despite Sunderland's undisputed claim to be the most efficient car factory in Europe.

Sir Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union, said: "The Government has offered funds and political support, now it is up to Nissan to recognise Sunderland is the perfect place to build the Micra." Speaking about the reports coming from Japan Sir Ken added: "Clearly this is also encouraging, although it's only speculation.

"Sunderland is the best car plant in Europe, and the company would be mad to consider switching production elsewhere."

Many of the 5,000 workers at the plant expressed relief last night. Brian Bush, 29, of Whickham, Gateshead, said: "I have been working for Nissan for nine years as part of a team of manufacturing staff on the Almera and Micra assembly line.

"I was here in 1992 when we first won the contract to build the new Micra and it means security for my family. We have the best workforce here - very flexible and hardworking."

The next Micra is a crucial model for the Sunderland plant because it marks the first true joint venture with Renault that will be made in massive numbers.

Both companies will use the car's chassis for their own superminis - Nissan the Micra, and Renault the next generation Clio.

If the contract goes to Sunderland it will help lift production to almost 500,000 cars a year, confirming the plant as Britain's biggest producer.

It will also help scores of smaller firms which supply components to Nissan and secure thousands of jobs.

However, the strength of sterling has already prompted Nissan to draw up plans to source more components from Europe irrespective of where the Micra is built