TOKYO, April 25, Reuter - Japan's embattled Prime Minister Noboru Takeshita apologised and announced his resignation on Tuesday, engulfed by the country's biggest political scandal in decades.

The financial markets immediately breathed a sigh of relief that an end to the nine-month-long political crisis was in sight, and both the yen and Tokyo stocks surged in celebration.

"Takeshita should have resigned much earlier," said one Tokyo taxi driver. "But I don't think anything will change no matter who takes over. All politicians seem to be addicted to money."

Speaking at a televised news conference during which he kept a fixed smile on his face, Takeshita said he would step down as soon as the national budget, stalled in parliament since early March as a result of the scandal, was passed.

"I must especially make a deep apology for my personal involvement in the case and I have decided to step down in order for the people to regain confidence in politics," he said.

The scandal involved huge payments from the Recruit publishing and telecommunications group to dozens of public figures including most of the ruling Liberal Democratic Party's leadership.

Political analysts said they now expected the opposition parties to end their boycott of parliament and allow the budget to complete passage of both houses by mid- to late-May.

The Recruit scandal has also forced three cabinet ministers to resign and sent the popularity of the ruling party plummeting to rock bottom.

"I feel deep responsibility as head of the government and the Liberal Democratic Party over the growing mistrust of politics and the crisis of representative democracy over the Recruit case," he said.

Earlier this month, Takeshita admitted in parliament receiving large donations from Recruit, although he insisted they were all above-board.

It was not immediately clear who would replace Takeshita when he stepped down, but the top candidate is former foreign minister Masayoshi Ito, the only leader of the LDP not implicated in the Recruit scandal.

Ito, 75, is believed to be suffering from diabetes. He indicated to reporters on Monday that he had declined an offer from Takeshita to succeed him.

Asked about who would succeed him, Takeshita told the news conference:

"It is not proper for me as one who is quitting to predict or state conditions over who will succeed me."

In California, President George Bush's spokesman said he did not expect Takeshita's plan to resign to have any substantial impact on U.S.-Japan relations.

"Mr Takeshita has been a very good friend of the United States," he said. "We would not expect our relationship to change in any substantial way."

Takeshita said he would still make a scheduled trip to several Southeast Asian countries starting on Saturday despite the crisis, due to the importance of relations with those nations.

Takeshita is the fourth Japanese prime minister since 1945 to be forced from power as a result of political scandals. The last Japanese prime minister forced to step down was Kakuei Tanaka, who quit in 1974, over shady real-estate deals.

The opposition parties, who have been handed their best chance for years to topple the LDP, welcomed Takeshita's announcement.

"I have a feeling that he missed the timing and it's too late. But it's a first step on the way to victory for the people," said Takako Doi, leader of the main opposition Japan Socialist Party.

The opposition, usually wracked by internecine struggles, formed a coalition earlier this month to fight an Upper House election scheduled for late July or August.

Political analysts said their initial feeling was that Takeshita's departure should give the LDP, in power continuously since 1955, a chance to retain its dominance of both houses of parliament.

Business analysts said they expected no major changes as a result of Takeshita's decision.

"Individuals are not terribly concerned about the political situation," said Ross Rowbury, a senior broker at Sanyo Securities.

"Once Takeshita is gone, the budget will be passed and everything returns to normal," he said.

Many ordinary people focused not so much on the scandal, but on a controversial three per cent sales tax introduced by Takeshita on April 1 despite huge opposition from the public.