G20 leaders craft crisis response

LONDON (Reuters) - World leaders will impose new financial rules on Thursday and come up with more funds for the IMF to temper the worst economic crisis since the 1930s.

But host Britain conceded there were still gaps to close at Thursday's G20 summit. France and Germany are demanding concrete measures on tax havens, hedge funds and markets rather than promises of action.

"I wish they (the differences) were manufactured and then they would be easily ironed out. They have persisted overnight but I think you'll get an outcome that corresponds to people's levels of expectations and ambitions," Business Secretary Peter Mandelson, told BBC Television.

A communique drafted for the meeting, obtained by Reuters, said leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up International Monetary Fund.

However, there was still debate over enhanced funding for the IMF to tackle crises in emerging economies, precisely how to police tax havens and the amount of money to boost trade.

G20 leaders were preparing a major expansion in resources available through the IMF, possibly including a tripling of its war chest to $750 billion (514 billion pounds), officials familiar with negotiation of the issue said.

The draft included a pledge to deliver "the scale of sustained effort necessary to restore growth" without making any commitments beyond the trillions being spent to stabilise banks, shore up demand and limit job losses.

Keen to secure a confidence-boosting message as the world succumbs to recession, U.S. President Barack Obama said there were no substantive differences with Europe, despite a hardball stance taken by the French and German leaders over new financial rules.

Washington wanted tougher regulation too, Obama told a news conference on Wednesday with Prime Minister Gordon Brown, host of the summit. The gathering brings together the world's biggest economies, developed and up-and-coming, in all accounting for more than 80 percent of world trade and economic output.

It was not clear whether the flashpoint, which appeared to focus primarily on France's demands for blacklisting of tax havens, would be enough to derail a message of unity.

"The most important issue is that we agree ... on the principle that no financial market product, no financial market participant and no financial market can remain without regulation and without supervision," German Finance Minister Peer Steinbrueck told Deutschlandfunk radio on Thursday.

SUMMIT HOPES BOOST STOCKS

World stock prices, battered by the crisis for months, have recovered some lost ground in the last month and shot higher on Thursday on hopes for a strong agreement by the G20 leaders.

The index of top European shares jumped 3 percent after Japan's Nikkei gained 4.4 percent.

"A good rally is coming through, particularly from Asian markets overnight on hopes for a decent stimulus package from the G20 to lift confidence, especially with regards to emerging economies and a boost to the International Monetary Fund," said Henk Potts, strategist at Barclays Wealth.

Those gains will vanish if the summit does not deliver.

The global economy is expected to shrink more in 2009 than any year since World War Two, dropping between 0.5 and 1.0 percent, according to the IMF, whose head, Dominique Strauss-Kahn, is calling it a "Great Recession."

"They are not yet moving quickly enough in doing the cleaning up of the financial system," the Financial Times' front page quoted Strauss-Kahn as saying on Thursday.

The draft communique contained a pledge by the G20 nations to allow "candid, even-handed and independent" surveillance of their economies and financial sectors by the IMF, which will take an increasingly central role in global oversight.

It also unveiled a new Financial Stability Board to work with the IMF to identify economic and financial risks and measures needed to address them, revamping an existing body called the Financial Stability Forum.

DIFFERENCES REMAIN

Paris and Berlin, fearing the summit would fall short of the mark on regulation of tax havens, hedge funds and markets in general, went in gunning for concrete announcements.

"Any regulations we don't agree here, won't be agreed for the next five years," German Chancellor Angela Merkel told a joint news conference with her French counterpart on Wednesday. "The summit is not about horsetrading between regulation and economic growth programmes."

Police said one person died during protests on Wednesday which saw several hundred demonstrators clash with riot police and bank windows smashed in London's financial centre.

A police source said it was likely the man died from a medical condition. More protests were planned for Thursday.

(Writing by Mike Peacock and Keith Weir, editing by Janet McBride)