By Jeremy Gaunt and Mark Felsenthal
LONDON/WASHINGTON (Reuters) - The European Union pledged on Monday to protect people's savings and maintain financial stability while Washington urged a more coordinated approach to the worst banking crisis in nearly 80 years.
Amid criticism of a fragmented EU response, French President Nicolas Sarkozy issued a statement from the 27 member states saying individual countries would do all they could to safeguard the financial system.
"Each one of us will take all the necessary measures to ensure the stability of the financial system," Sarkozy said.
More European governments followed Germany's lead to increase guarantees to bank savers but individual moves by governments and financial authorities to calm investors across the world failed to comfort markets.
Investors from Tokyo to New York dumped riskier assets in alarm at the prospect of further tightening of credit and bank lending and a potentially serious global economic recession.
Shares in New York fell more than five percent while Europe's main index was on course for a record one-day fall in percentage terms.
Many investors wanted more concrete steps from authorities, perhaps in the form of coordinated action from next weekend's meeting of the Group of Seven industrial nations.
Economies that gained most from the boom in commodities demand and surging global expansion in the last three years were at the sharp end of market moves. Emerging market stocks as a whole were down 10 percent.
Iceland's crown tumbled 30 percent against the euro after the government failed to produce a stability plan over the weekend.
The country has been a prime target for foreign deposits over the past few years because of its high interest rates. Demand is now unwinding rapidly as investors flee anything considered risky.
BOOSTING CONFIDENCE
Governments and financial authorities, meanwhile, battled to restore confidence.
The Bank of Japan offered to lend 1 trillion yen ($9.68 billion) to banks in an auction to inject liquidity into the market. South Korea said it wanted crisis talks with Japan and China.
Sweden became the latest European Union country to act, with the government saying it would expand bank deposit guarantees and the central bank raising the amount of loans offered to banks.
It followed Germany's pledge on Sunday to guarantee private deposit accounts, a move which spurred similar action by Austria and Denmark. Ireland issued the first such guarantee last week.
Tensions in Europe resurfaced with some smaller nations angry at being left out of a weekend summit hosted by Sarkozy for Germany, Britain and Italy -- all members of the G7.
In Washington, President George W. Bush's top financial market stewards said financial strains require policy-makers nationally and around the world to act in "forceful and coordinated ways" to restore stability.
"The diversity of institutions and markets under stress, and the magnitude and complexity of the adjustment underway, requires that the tools available to policy-makers, regulators and supervisors be used in a forceful and coordinated way ... in the United States and throughout the world," the President's Working Group on Financial Markets said in a statement.
BANKS STRUGGLING
European banks have been hit hard recently by the fallout from a crisis that began in the United States when the housing market collapsed and bad mortgage debts multiplied.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession.
German Finance Minister Peer Steinbrueck said Berlin was working on a new plan to protect the entire German bank sector, not just individual institutions that came under stress.
Euro zone finance ministers were to meet later in the day in Luxembourg.
In the battered banking industry itself, France's BNP Paribas scooped up the assets of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.71 billion) to stem a cash drain on Fortis.
Shares in Belgo-French financial services group Dexia fell as much as 22 percent even though its board said on Sunday the firm was able to deal with deteriorating markets.
Trading in shares of Italy's UniCredit were suspended several times after sharp falls following the bank's abrupt U-turn to boost capital by 6.6 billion euros amid what it called unprecedented market turmoil.
On a frantic weekend, Germany also clinched a revised rescue deal for lender Hypo Real Estate that will see commercial banks and insurers provide 15 billion euros in liquidity, on top of an initial pledge of 35 billion euros.
For its part, the U.S. Federal Reserve was pushing Citigroup Inc and rival Wells Fargo & Co to compromise over their competing bids for hobbled U.S. bank Wachovia Corp that could result in them carving up its assets.
(Additional reporting from Milan, Paris, Frankfurt, Brussels, Luxembourg, New York, Washington, Sydney, Seoul, Beijing, Stockholm, Hanoi, Dubai, Karachi)
(Writing by Jeremy Gaunt; editing by Keith Weir)
