TOKYO (AFP) - Tokyo and New Delhi will next week sign an agreement that will see around 2,000 tons of rare earths imported from India, a report said on Thursday, as Japan looks to diversify supply away from China.

Japanese Prime Minister Shinzo Abe and his Indian counterpart Narendra Modi are expected to agree on the deal at their summit in Tokyo on Monday, the Nikkei newspaper reported.

Some 2,000 to 2,300 tons of rare earths - roughly 15 per cent of what Japan's manufacturers use each year - will be shipped from India to Japan, it said, adding that imports will start as early as February.

China accounts for 95 per cent of global production of rare earths, a category of 18 metals vital for the production of smartphones, hybrid car batteries, wind turbines, steel and low-energy light bulbs, amongst other things. The country is home to 23 per cent of global reserves of such metals, and this month lost an appeal on a ruling by the World Trade Organisation that said it had violated global trade rules by restricting exports.

Beijing says its restrictions were aimed at conserving natural resources and reducing pollution caused by mining. But critics say the limits are a bid to drive up prices and gain market advantage for domestic producers with cheaper access to the raw materials. Japan also accuses China of strangling supply to score political points.

In 2010, Beijing restricted rare earth exports when Japan arrested the captain of a Chinese trawler that was involved in a run-in with Japanese coastguards near the disputed Senkaku Islands, claimed by China as the Diaoyus.

Under the accord, Indian Rare Earths (IREL), a wholly owned subsidiary of India's Department of Atomic Energy, and Japanese trading house Toyota Tsusho will sign a contract on joint production as early as September, the Nikkei said.

IREL will make mixed rare earth materials from uranium and thorium ores, which Toyota Tsusho will use to produce neodymium for electric and hybrid cars, as well as lanthanum, cerium and praseodymium, the newspaper reported.

A Toyota Tsusho spokesman confirmed the deal is near. "We are at the final stages and close to striking the deal," the spokesman said. "Negotiations have been accelerated since the power change in India," he added, referring to Modi's election victory in May. Japan, which had relied on China for more than 90 per cent of its imports of rare earths, already has agreements for joint development of resources with Vietnam and Kazakhstan.

Modi will visit Japan from Aug 30 to Sep 3 on his first trip outside South Asia since coming to power.