South Korea joins global rescue as crisis summit planned

SINGAPORE (Reuters) - South Korea joined worldwide efforts to shore up banks and markets pummelled by the biggest economic crisis since the Great Depression that world leaders say calls for a coordinated global response.

Authorities in Seoul on Sunday pledged $130 billion in state guarantees and capital injections just hours after U.S. and European leaders said they planned to hold a series of global crisis summits to hammer out a global action plan.

President George W. Bush said on Saturday he would host the first such summit, due to be held soon after the November 4 presidential election.

A joint statement after his meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso at the presidential retreat in Camp David said the first summit would focus "principles of reform" needed to fix the world's financial system.

"Later summits would be designed to implement agreement on specific steps," the statement said, adding that other world leaders would be contacted beginning next week.

Bush leaves office in January and a White House spokesman said he did not know whether the newly elected president, either Democrat Barack Obama or Republican John McCain, would be invited to attend the first summit.

Japan, which chairs the Group of Eight, declared its backing for the summits, but its finance minister warned they would only be worthwhile if they produced concrete results.

"If a summit were to be held, it should come up with a strong action plan or a decision," Finance Minister Shoichi Nakagawa said on Sunday. "I think the prime minister is making preparations based on this understanding."

LAST RESORT

In Seoul, the authorities rushed out their rescue plan to bolster local markets plagued by worries that local banks' high level of foreign borrowing makes Asia's fourth-largest economy particularly vulnerable to the 14-month-old credit crisis.

"The government has decided to join in global coordinated efforts to stabilize financial markets and we'll continue to provide pre-emptive, decisive and sufficient measures to this end," Finance Minister Kang Man-soo told reporters.

The won has lost about a third of its value against the dollar so far this year to hit its lowest level since the Asian financial crisis 11 years ago, and foreign investors have sold off a record 30 trillion won of local shares.

Analysts welcomed Sunday's measures, saying they should soothe local markets, adding they expected the central bank to trim interest rates as early as next month to prop up sagging domestic demand.

"The government has sent a strong signal to market players in a panic that they will stand as lender of last resort in a crisis," said Hong Sun-young at Samsung Economic Research Institute.

South Korean officials said they were not considering spending public funds on stakes in domestic banks for now, but said could take such steps and offer deposit guarantees if necessary.

Governments around the world have pledged about $3.2 trillion -- about the same as the economic output of Germany -- in a variety of schemes that guarantee bank deposits, bank-to-bank lending, and taking stakes in banks to shore up their capital.

That came on top of huge cash injections into money markets and coordinated interest rate cuts and offered some respite to money markets, which seized up gripped by fears of more bank failures after last month's bankruptcy of Lehman Brothers.

But wild market swings amid gathering fears of the worst global recession since the 1930s showed hundreds of billions of dollars committed to bank bailouts were not enough and prompted calls for a global summit and far reaching reforms.

"It would be wrong to challenge the foundations of market economics. But we cannot continue along the same lines because the same problems will trigger the same disasters," Sarkozy, whose country holds the rotating EU presidency, said on Saturday.

He has called for a revamp of the international financial system established at the end of the World War Two at the Bretton Woods conference -- a massive overhaul that may not win an unqualified support in the Bush administration.

WORLDWIDE PAIN

Policymakers now are clear that the challenge is too big and markets too interconnected for any country to act alone.

"It is essential that we work together because we are in this crisis together," Bush said before the meeting.

Signs of economic pain abound worldwide.

U.S. consumer confidence and new-home construction tumbled, reinforcing views that the world's biggest economy was in or close to a recession and the outlook for Europe and Japan was similarly grim.

Japan, the world's second biggest economy already teetering on the brink of recession, was set to slash its economic forecasts later this month, Bank of Japan board member Atsushi Mizuno was quoted as saying.

The financial maelstrom has left no corner of the world unscathed with Iceland, Ukraine and Pakistan scrambling to secure aid from financial institutions to prop up their economies.

Iceland, pushed close to financial collapse by the bank crisis, faced more uncertainty as Russia indicated it was not yet convinced it should issue it a loan.

Even the cash-rich oil exporting nations were not immune to the turmoil. In Russia, Finance Minister Alexei Kudrin said investors had pulled $33 billion out of the country from August through September. In the United Arab Emirates, authorities were set to pump $19 billion into its banks to ease a funding squeeze, a newspaper reported on Sunday.

(Reporting by Reuters bureaus worldwide; Writing by Tomasz Janowski; Editing by Jeremy Laurence)