West urges financial overhaul, Asia fears slowdown

LONDON (Reuters) - Asian policymakers held emergency talks to find ways to bolster their banks on Friday before a meeting between U.S. and French presidents that Nicolas Sarkozy said could help launch a "refoundation of capitalism."

Regulators demanded tougher financial rules to guard against a repeat of the worst financial crisis in 80 years, with the chairman of Britain's financial watchdog saying it was time "to wipe the slate clean."

Adair Turner, chairman of Britain's Financial Services Authority, said the global banking system was past the danger of systemic meltdown although the world faced recession.

"There's no chance of a 1929-1933 depression. We know the lessons, and we know how to stop it happening again," he told the Guardian newspaper.

French president Sarkozy said a meeting with U.S. President George W. Bush on Saturday would help plan a global summit that should make decisions on transparency, global regulatory standards, cross-border supervision and an early warning system.

White House spokeswoman Dana Perino said the meeting between Bush, Sarkozy and European Commission President Jose Manuel Barroso was not connected to the global summit.

But British Prime Minister Gordon Brown said they would discuss "urgent reforms of the international financial system."

He said the post-World War Two financial institutions were out of date.

"They have to be rebuilt for a wholly new era in which there is global, not national, competition and open, not closed, economies," he wrote in the Washington Post newspaper.

INVESTORS FLEE RUSSIA, ASIA SEEKS FIX

In Russia, hit hard by the crisis and international wariness after a brief war with former Soviet Georgia, Finance Minister Alexei Kudrin said investors had pulled out $33 billion in August-September. He said stocks would fall further.

"Our economy and our market is closely linked to the growing risks in the world economy and to falling oil prices," Kudrin told the lower house of parliament.

A source said another Russian bank could be nationalized, bringing the total to four. The source said state-owned VEB bank was in talks to buy mid-sized bank Globex, which lost 15 percent of its deposits from this month's balance.

Buying of cheap bank shares helped buoy stock markets.

Equities rose across the world on encouraging signals from technology firms. At 5 a.m., the FTSEurofirst 300 index of top European shares was up 2.1 percent. .

But in Asia, governments scrambled to find ways to shore up their banks and try to combat an economic slowdown.

Reflecting growing alarm over the widening credit crisis, a panel of Japan's ruling Liberal Democratic Party was considering schemes to recapitalize big banks with government money, Kyodo news agency reported.

In Korea, authorities pledged action to stabilize markets. Media reports said the steps, to be announced on Sunday, could include funding for local banks struggling to find international banks willing to lend them dollars.

Australia's prime minister held a summit with industry leaders who said credit was drying up and smaller firms were collapsing despite assurances the economy was in good shape.

Singapore, one of Asia's richest economies, and Malaysia both said they would guarantee all bank deposits until 2010, following similar moves by other governments.

After world governments pledged $3.2 trillion to stabilize the financial sector, money markets have shown tentative signs of healing, though interbank lending is still tentative at best.

The interbank cost of borrowing overnight dollars fell again in Europe although longer rates, including those for euros and sterling, were slower to ease with banks still reluctant to lend for longer periods.

Overnight deposits at the European Central Bank remained above 200 billion euros for the second day running -- more evidence that banks prefer to house cash with central banks rather than their commercial counterparts.

Until bank-to-bank lending -- frozen for much of the last year by uncertainty over which groups faced financial disaster -- is flowing freely again, corporate activity and consumer spending cannot hope to recover.

RECESSION

Evidence mounted that a recession may be unavoidable even if a financial meltdown has been averted.

Bank of Japan Governor Masaaki Shirakawa said there was growing uncertainty over the bank's view that the economy would return to moderate growth.

"We must be mindful of how recent global financial market turmoil could, through worsening world economic conditions, affect Japan's economy," he said.

European Central Bank policymaker Guy Quaden said the euro zone's economic prospects had deteriorated over the last week amid the latest leg of the financial crisis,

Signs of trouble in China increased uncertainty about the world's main source of growth.

Listed Chinese firms put more than $1 billion of fund-raising plans on ice as the credit crisis and falling share prices began to cast a chill over China's fast-growing economy.

And hundreds of workers gathered outside a shuttered toy factory in southern China, after a Hong Kong-listed toymaker closed as tough times were made worse by U.S. economic weakness.

(Additional reporting by Reuters bureaus around the world; Editing by Mike Peacock)