TOKYO (Reuters) – Shares, gold and oil fell and the euro remained pressured on Wednesday as Greece struggled to form a government two days after an election, heightening the risk that a hard-won bailout deal could be scrapped.

Radical leftist Alexis Tsipras meets the leaders of Greece’s mainstream parties on Wednesday to try to form a coalition government, an effort seen as doomed after he demanded that pledges made in exchange for an European Union/International Monetary Fund rescue package be torn up.

Officials estimate Greece could run out of money as soon as next month if it does not stick to the aid package terms, which kept the country solvent and in the single currency bloc.

A broad measure of Greek stocks dropped 3.6 percent to close at its lowest level in almost 20 years on Tuesday, while European shares sank to a four-month closing low.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.1 percent to its lowest in more than three months, with energy , materials and growth sensitive industrials leading the declines.

Resources-heavy Australian shares plunged 1 percent to a three-week low.

“Market sentiment will have to be bearish while Greece’s response to the EU agreement remains unclear,” said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.

“Equities and energy markets, which had gained markedly since the start of the year will likely come under intensifying selling pressures as investors seek to wind down their long positions when risks rise of Greece departing from the euro and triggering a credit contraction,” he said.

Japan’s Nikkei stock average slid 1.2 percent, weighed partly by the yen’s firmness against the dollar and the euro hitting exporters.

With Sunday’s elections in France and Greece handing victory to anti-austerity camps, concerns were mounting for a further delay in fiscal reforms seen as vital to refinancing highly indebted euro zone members.

“No one can see a way out of this situation, and unless European leaders come to an agreement at the next G8 meeting, the market is going to remain on edge,” said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities. The G8 leaders will meet late next week.

SEEKING SAFE HAVENS

Investors shunned commodity-linked currencies, sending the Australian dollar down to a fresh four-month low of$1.0060 on Tuesday. The euro fell 0.3 percent at $1.2969, not far from a three-month low of $1.2955 reached on Monday.

“As long as political uncertainty continues, the Greek presence in the euro area in its current form could be seen to be at risk, in our view,” said Bank of America Merrill Lynch in a research.

Safe haven assets continued to draw strong bids.

U.S. Treasuries firmed in Asia on Wednesday, with the benchmark 10-year note yielding 1.8350 percent, compared with 1.8454 percent in late U.S. trade. U.S. yields briefly dipped below 1.82 percent on Tuesday to their lowest since early February, while benchmark German yields fell to a record low of 1.533 percent on Tuesday.

Gold, which is often seen as a safe haven, was pulled lower by the euro’s weakness given bullion’s close correlation with the single currency. It fell 0.7 percent to hit a four-month low of $1,593.04 an ounce on Wednesday.

“Gold is not benefiting from an asset allocation from the euro seen at last year’s euro zone crisis, as it is increasingly viewed as a quasi-currency, a risk asset, and has become prone to risk aversion,” Niimura at Risk Advisory said.

Oil extended losses, with Brent June crude down 0.5 percent at $112.22 a barrel, after falling to a low of $110.53 on Tuesday. U.S. June crude eased 0.4 percent at $96.60 a barrel, still off Tuesday’s low of $95.52.

“This Greece political uncertainty has the potential to derail the risk rally we have seen this year,” said Stan Shamu strategist at IG Markets.

A broad market slide dampened sentiment in Asian credit markets, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 6 basis points.

(Additional reporting by Sophie Knight in Tokyo and Miranda Maxwell in Melbourne; Editing by Alex Richardson)

WASHINGTON (Reuters) – Global finance chiefs pressed Europe in weekend talks to quickly put in place the economic reforms needed to finally extinguish its debt crisis now that newly increased financial buffers have bought some precious time.

A day after advanced and emerging countries agreed to double the firepower of the International Monetary Fund to help contain the crisis, the IMF’s governing panel said on Saturday that the 17-nation euro area must cut government debt burdens further, push bold economic reforms and stabilize financial systems.

Debt problems will resurface and growth will stumble unless these steps are taken, the head of the IMF’s governing panel, Singapore’s finance minister, Tharman Shanmugaratnam, warned.

An uneasy calm returned to world financial markets after the Greek crisis subsided but the IMF is concerned that without strong action fresh tensions will erupt, sapping global growth.

The IMF panel said all advanced economies needed plans to rein in deficits, but it singled out the euro zone as crucial to revitalizing strong growth.

The euro area, the world’s second-largest economic bloc, already has slipped into a mild recession, weakening its major export partner China and other parts of emerging Asia, while growth in the United States remains sluggish.

Unless stronger growth is restored and investor confidence returns, the IMF and finance chiefs from around the globe said the world will not break out of a vicious debt-driven cycle.

“What was really critical in all our minds was to get back to normal growth over the medium term and preferably sooner rather than later, in other words within two to three years,” Tharman said at a news conference on Saturday.

“If we don’t get back to normal growth, if we don’t get GDP back to its potential levels, then fiscal sustainability is not possible either,” he warned.

The Group of 20 developed and emerging nations on Friday agreed to provide the IMF with a further $430 billion, more than doubling its lending power to erect a higher firewall in case the euro zone’s debt crisis spreads. That complements a $1 trillion fire-fighting fund being assembled by Europe.

“If the time that liquidity can buy is used to address the growth, solvency and institutional problems, fine,” economists at Morgan Stanley wrote. They worried, however, that policy-making complacency might set in.

Political developments are clouding the picture. In France, a presidential election could bring to power Socialist Francois Hollande, who has vowed to renegotiate a German-inspired budget discipline treaty. Support for the pact is also waning in the Netherlands, where budget talks collapsed on Saturday.

FINGER POINTING

The United States piled the pressure on Europe to take advantage of its newly won breathing space.

“The success of the next phase of the crisis response will hinge on Europe’s willingness and ability, together with the European Central Bank, to apply its tools … aggressively to support countries as they implement reforms,” U.S. Treasury Secretary Timothy Geithner told the IMF’s panel.

But in what participants said was an intense discussion, Germany pointed the finger back at the United States, the world’s largest economy. U.S. fiscal troubles may reach the boiling point at year’s end when expiring tax cuts and plans for deep budget cuts could throw the economy into recession.

Despite the need for action, a U.S. presidential election in November has resulted in political stalemate.

“We understand the political constraints but there is no way around it and there is urgency,” said German Finance Minister Wolfgang Schaeuble.

ROOM TO ACT

But it was Europe that the IMF panel singled out for policy advice. It stressed that budget consolidation must be balanced to avoid overly harsh cuts that undermine growth and make deficits even worse – a tricky act that Italy and Spain currently are facing.

“There has been a big discussion about how to make it possible to have fiscal strengthening and growth,” said Italy’s deputy finance minister, Vittorio Grilli. While the timing matters, fiscal tightening must come first, he said.

The panel, made up of finance ministers who advise the IMF on policy, called upon major central banks to help by keeping interest rates low and monetary stimulus in place, as long as growth remains weak and inflation under control.

A call by the IMF for lower euro zone interest rates, however, met resistance from some ECB policymakers in Washington. Germany in particular is concerned that loose monetary policy will stir inflation, and argued it is no panacea for budgetary woes.

EMERGING MARKETS POWER

The IMF committee called on its members to ratify “expeditiously” a 2010 plan to increase representation of emerging economies on the IMF’s executive board, reflecting their growing clout in the world economy. Brazil said this was an essential condition for it to provide the IMF funding.

But voting reforms are unlikely to get approved by the IMF’s October meetings because of the highly partisan climate in Washington and the need for U.S. congressional approval.

“I did not hear any clear announcement from the U.S. that they will be able to deliver,” Schaeuble said.

Britain said its $15 billion contribution would only become available once the 2010 IMF reforms were completed.

(Additional reporting by Reuters IMF reporting team; Editing by Andrea Ricci)

WASHINGTON (Reuters) – European Central Bank officials showed no sign of bending to renewed international pressure to do more to boost the euro zone’s struggling economy.

Top ECB policymakers, attending the International Monetary Fund‘s spring meetings, politely but firmly rebuffed the IMF’s call that the bank should cut its policy interest rate below 1 percent and be prepared to provide more public funding to banks to reduce the risk of a new flare-up of the crisis.

“It’s a free world, we take note of this, but let me say that none of the advice of the IMF has been discussed by the Governing Council, in recent times at least,” ECB President Mario Draghi told a news conference on Friday.

And the ECB delegation to Washington had nothing to say, at least publicly, about a fresh suggestion by U.S. Treasury Secretary Timothy Geithner that the ECB had a role to play in helping European economies through tough reforms ahead.

“We think we have done our task in the last months by quite a number of standard and non-standard measures we have taken,” ECB executive board member Joerg Asmussen said on Friday on the sidelines of the IMF meetings.

He said the ball was now in the court of euro zone governments, which are trying to narrow budget deficits and undertake other reforms to restore market confidence and generate growth.

Unlike the U.S. Federal Reserve, which pursues full employment as well as low inflation, the ECB’s marching orders are to focus on keeping price growth in check, a point underscored by ECB officials several times over the weekend.

The Fed may yet provide more stimulus, on top of its near-zero interest rates and the $2.3 trillion in bonds it has already bought, even though the U.S. economy is stronger than Europe’s.

Economists polled by Reuters expect growth in the euro area to shrink by 0.4 percent in 2012 and to stay in a mild recession until the third quarter as weakness in Italy, Spain and Greece outweighs the stronger performance of regional powerhouses Germany and France.

“The stance of our monetary policy is fully appropriate,” ECB Vice President Vitor Constancio said in a speech. “It’s appropriate to the situation and the prospects that we (face) right now.”

The pressure on the ECB in Washington to do more to help growth contrasted with concerns among many policymakers from the 17-nation euro zone that their unprecedented stimulus to date could spark inflation when the region’s economies regain health.

ECB officials said they have met their responsibilities by lowering interest rates to 1 percent and providing two rounds of long-term loans to banks to prevent a credit crunch.

Bundesbank President Jens Weidmann said there was no shortcut for the ECB to restore market confidence.

“You cannot solve structural problems in the economy with instruments of monetary policy,” Weidmann said.

His counterpart at the Bank of France, Christian Noyer, also pushed back at the notion of the ECB as the savior of Europe.

“There is a tendency among certain market participants and certain policymakers to consider the central banks as universal problem solvers whose balance sheet can be used without cost for all sorts of purposes,” he told an audience in Washington.

Nonetheless, he suggested the ECB would be in no rush to return to normality.

“In the situation where we are today, we may have to live with a combination of high public debt and unconventional monetary policy measures for some period of time and monetary policy will likely for some time rely on a diversity of instruments and also macroprudential measures will interact with monetary policy in a complex way,” he said.

With many debt-laden euro area countries trying to prove their fiscal mettle with budget cuts, the ECB is seen by many as the only authority capable of taking growth-enhancing measures.

The question of whether policymakers around the world need to act to boost growth was a central one at the IMF discussions.

“Countries were pretty divided about that. European countries mostly believe that you just need to carry on the fiscal consolidation and economies will adjust,” Brazilian Finance Minister Guido Mantega said.

Economist Nouriel Roubini said the ECB should consider cutting interest rates to weaken the euro currency and boost exports at a time when demand within the euro zone was so weak.

The IMF warned last week that rising funding pressure in the European banking system may reignite the crisis, and it has called on the ECB to provide monetary stimulus.

The IMF praised the ECB’s recent decision to raise the combined lending ceiling of the European Stability Mechanism and the European Financial Stability Facility but said an expanded ESM may be necessary.

Financial markets do not expect the ECB to change policy at its May meeting, but observers are watching closely for any hints about plans for an exit from loose monetary policy.

Markets expect the ECB to keep interest rates on hold for the rest of this year and well into the next.

(Additional reporting by Krista Hughes, Pedro da Costa and the IMF reporting team; Editing by Andrea Ricci)

WASHINGTON (Reuters) – The Group of 20 nations on Friday pledged $430 billion in new funding to the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

The promised funds from advanced and emerging economies will provide the global lender with a huge war chest should the sovereign debt problems that have engulfed three euro zone countries spread and threaten a fragile recovery.

IMF Managing Director Christine Lagarde said the decision shows the determination of the international community to provide the IMF with the tools needed to resist and defend against crisis.

“This is extremely important, necessary, an expression of collective resolve,” she said.

“Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount,” said Lagarde.

The $1 trillion figure included both the IMF’s existing and newly pledged resources, as well as loans already committed.

The IMF would be able to use its increased firepower to help any country or region in need. But Europe‘s crisis was the driving force behind the push for more funding. Greece, Ireland and Portugal have already received bailouts. Investors now are worried that Italy and Spain, the euro zone’s third and fourth biggest economies, will fail to bring down their debt burdens quickly enough to satisfy financial markets.

Worries about the euro zone’s debt crisis have dominated talks among finance officials in Washington this week for the semiannual meetings of the IMF and the World Bank. The IMF has warned the crisis presents the gravest risk to the global economic expansion.

In a reminder of the financial stress, 10-year government bond yields in Spain topped 6 percent for the third time this week. Rising yields reflect investors’ demand for higher returns to compensate for perceived increases in risk, and there are fears that Spain’s borrowing costs will become unaffordable.

Financial market participants welcomed the move, but warned that it does not solve the problems of Europe’s debt-plagued nations.

“Having an extra G-20 commitment to the IMF is still a number of steps removed from Spain and Italy being able to meet the markets day in and day out and raise money,” said Robert Tipp, chief investment strategist with Prudential Fixed Income in Newark, New Jersey.

“During the Lehman crisis, a real turning point was when the G20 unconditionally guaranteed the Libor market,” he added, referring to the London interbank offered rate, the benchmark for a vast amount of lending worldwide. “That stopped trend widening trends. And the economic situation has become more dire. There are more countries in recession, which increases the odds of them missing their targets.”

The G20 on Friday warned that clouds still loom over the outlook for the global economy.

“The tail risks facing the global economy only months ago have started to recede,” the G20 said after a meeting. “However, growth expectations for 2012 remain moderate, deleveraging is constraining consumption and investment growth, volatility remains high partly reflecting financial market pressures in Europe and downside risks still persist.”

Emerging markets won assurances from their G20 partners that their growing economic clout would be rewarded over time with greater voting power in the IMF. Brazil, in particular, had pushed for such a pledge.

Brazilian Finance Minister Guido Mantega said after the G20 meeting that the BRICS group of leading emerging nations – which also includes Russia, India, China and South Africa – had unanimously agreed to provide more money for the IMF.

(Writing by Stella Dawson and Tim Ahmann; Additional reporting by Walter Brandimarte and Leika Kihara; Editing by Neil Stempleman and Leslie Adler)

WASHINGTON (Reuters) – The Group of 20 nations on Friday pledged more than $430 billion to better than double the International Monetary Fund‘s lending capacity and protect the global economy from the euro zone’s debt crisis.

The commitments seek to ensure the IMF’s resources are not overwhelmed should the crisis spread. Greece, Ireland and Portugal have already received bailouts, and investors are worried about Italy and Spain, whose economies are the third and fourth biggest in the euro zone.

Although the global lender would be able to use its increased firepower to help any country or region in need, Europe’s crisis was the driving force behind the push for more funding.

“There are firm commitments to increase resources made available to the IMF by over $430 billion,” the G20 nations of developed and emerging economies said in a communique.

Worries about the euro zone’s debt crisis have dominated talks among finance officials in Washington this week for the semiannual meetings of the IMF and World Bank. The IMF has warned the crisis presents the gravest risk to the global economic expansion.

In a reminder of the financial stress, 10-year government bond yields in Spain topped 6 percent for the third time this week. Rising yields reflect investors’ demand for higher returns to compensate for perceived increases in risk, and there are fears that Spain’s borrowing costs will become unaffordable.

“The tail risks facing the global economy only months ago have started to recede,” the G20 said after a meeting. “However, growth expectations for 2012 remain moderate, deleveraging is constraining consumption and investment growth, volatility remains high partly reflecting financial market pressures in Europe and downside risks still persist.”

Emerging markets won assurances from their G20 partners that their growing economic clout would be rewarded over time with greater voting power in the IMF. Brazil, in particular, had pushed for such a pledge.

Brazilian Finance Minister Guido Mantega said after the G20 meeting that the BRICS group of leading emerging nations – which also includes Russia, India, China and South Africa – had unanimously agreed to provide more money for the IMF.

(Writing by Stella Dawson and Tim Ahmann; Additional reporting by Walter Brandimarte and Leika Kihara; Editing by Neil Stempleman and Leslie Adler)

WASHINGTON (Reuters) – Major emerging powers stood ready on Friday to pledge money to bolster the International Monetary Fund‘s crisis-fighting war chest, though Brazil was holding out for promises that their voting power at the global lender would increase.

Russia said that G20 advanced and emerging countries were ready at a meeting on Friday to commit enough new funds to fulfill IMF chief Christine Lagarde‘s request for at least $400 billion to draw a line under the euro-zone crisis. Russia itself, he said, would offer $10 billion.

“Trust me that the G20 will announce the final amount. This will be an amount that will satisfy the management of the International Monetary Fund,” said Sergei Storchak, Russia’s deputy finance minister.

Support from Russia, China and Brazil is crucial to achieve the doubling of the IMF’s war chest the global lender is seeking. Europe and Japan already have pledged $320 billion. An international diplomat said that in all, emerging nations have lined up at least $100 billion.

The IMF has warned that the euro zone’s debt crisis presents the gravest risk to the global economic expansion, and financial markets worry that Spain and Italy may next require bailouts, following Greece, Ireland and Portugal.

Enlarging the IMF’s coffers could offer solace to nervous investors that any widening of the crisis could be contained. Lagarde said on Thursday she expects to seal a deal on fresh funds at the World Bank/IMF meetings this weekend.

But Brazil said that as a condition for funds, emerging powers want fresh pledges to recognize their fast-growing global economic weight written into the G20 communique. They are frustrated over delays – particularly by the United States – in implementing an agreement to lessen Europe’s sway at the IMF and lift China into the No. 3 voting slot.

“What we want and demand in every meeting is that this commitment be reaffirmed,” Brazilian Finance Minister Guido Mantega said Thursday after a meeting of officials from the so-called BRICS nations – Brazil, Russia, India, China and South Africa.

Mantega drove the point even more forcefully in a speech prepared for delivery on Saturday to the IMF’s steering committee, saying it was no longer enough to simply repeat that voting reforms are crucial for the effectiveness of the IMF.

“Progress on this front has been limited and slow,” he will say, according to the text.

Canada, meanwhile, is pushing against Europe’s dominance on the IMF’s 24-member board. It wants to hold two votes when the IMF decides on how to use its new resources – one by euro zone countries and another by others. The idea would be to dilute Europe’s power on euro-zone-related issues.

This drive reflects growing concern among non-European countries over the fairness in the global lender’s dealings with Europe. The region has the largest single bloc on the IMF board and the Fund is headed by a French woman.

“Given that the major challenge here is a sovereign debt challenge in euro-zone countries, and that euro-zone countries are asking non euro-zone countries to contribute to resources at the IMF, our view is that there ought to be two votes,” said Canadian Finance Minister Jim Flaherty.

He has gained a sympathetic ear, South Korean Finance Minister Bahk Jae-wan, who said: “Their recommendation merits some consideration.”

Still, funds were near to being sealed. The international diplomat said some countries may need to get final approval from their capitols, so any firm deal may have to await a meeting of G20 leaders set for June and that final sums remained unclear.

China could contribute $60 billion, matching Japan’s pledge, although Beijing had not finalized the number. Saudi Arabia would chip in a little less than China, while Russia and Brazil were likely to contribute between $10 billion and $20 billion each, the diplomat said.

This would easily reach the marker of at least $400 billion set by Lagarde. The firewall would complement the $1 trillion in emergency funds for Europe agreed upon by the EU leaders last month, which was another precondition for countries bolstering the IMF resources.

(Writing by Stella Dawson; additional reporting by Walter Brandimarte and Leika Kihara; Editing by Philip Barbara)

WASHINGTON (Reuters) – International Monetary Fund chief Christine Lagarde said on Thursday she expects to win a big boost in funding to help the lender contain damage from the euro-zone debt crisis now that Europe has taken significant steps on its own.

Calling the euro zone the “epicenter of potential risk” for a world economic recovery that is “timid and fragile,” Lagarde also urged European Union policymakers to directly inject some bailout funds into their troubled banks.

“We expect our firepower to be significantly increased as an outcome of this meeting,” she said at a news conference to kick off the spring meetings of the IMF and World Bank.

The IMF wants to secure at least $400 billion in new funding, which would double its firepower to deal with the euro zone debt crisis and any spillover to other countries. The IMF firewall would complement the $1 trillion in emergency funds for Europe agreed upon by the EU leaders last month.

A larger IMF war chest to safeguard countries could help ease concerns in financial markets over the risks of global contagion. Investors are growing increasingly worried that Italy and Spain will fail to ratchet down their budget deficits as their economies shrink, forcing them to join Greece, Ireland and Portugal as bailout recipients, a prospect that weighed on global stocks on Thursday.

Concerns also are mounting about the resiliency of the European banking system. The IMF estimates its banks must shrink assets by $2.6 trillion over the next two years to meet higher capital standards and cover bad loans, causing credit to contract in an already weak economy.

Spain’s banks are particularly vulnerable, hit by a plunging property market and the falling value of Spanish government debt. An auction on Thursday highlighted nervousness over Madrid’s finances. Although bidding was solid, the government paid an uncomfortable 5.74 percent on its new 10-year bond.

Lagarde said the EU should use its bailout funds to inject capital directly into euro-zone banks, which would lessen the risk piled onto government balance sheets, and she called for the EU to supervise national banks.

“What we are advocating is that this be done without channeling through the sovereigns,” she said.

While concern grows over the solvency of euro-zone banks, the IMF was making progress in persuading countries to bolster its crisis-fighting resources. So far, it has raised $320 billion – all from Europeans and Japan.

It wants additional contributions from the leading emerging economies, which are resisting until they win further assurances that they will get a larger say in running the international lender.

Finance ministers from the BRICS group of leading emerging market nations – Brazil, Russia, India, China and South Africa – were meeting in Washington on Thursday, and IMF financing was a high priority on the agenda.

Japanese Finance Minister Jun Azumi, whose country is contributing $60 billion to the IMF, said as he arrived in Washington that BRICS funding is indispensable for global growth and he expects them to announce IMF support at some stage.

China, Brazil and Russia have said they are willing to chip in but they want more voting power at the IMF in recognition of the growing role they are playing on the financial stage.

Lagarde acknowledged in her news conference that giving emerging economies a greater say is a priority and an issue she will raise in one-on-one meetings with IMF member countries.

“We are going to ask the membership to finish the job in terms of quota resources and in terms of governance,” she said.

“There are changes that need to take place to better reflect the membership of the institution in terms of better economic strength, in terms of economic rule and we are not there.”

Lagarde took aim at the United States for its delay in approving voting reforms the IMF members agreed to in 2010, and called on Washington to show leadership as the fund’s largest shareholder.

The Group of Seven developed nations were set to talk about bulking up the IMF’s resources at an informal meeting later on Thursday, and the topic was set to be taken up by the Group of 20 developed and developing nations at a dinner and again at a meeting on Friday.

The United States has declined to provide fresh funds but on Wednesday it threw its weight behind the effort to raise more capital from other nations. Previously, it had pressed for bolder action from Europe first.

Lagarde on Thursday also welcomed Europe’s efforts in building its firewall. “There is a little bit missing here or there but it shows significant determination to defend their currency zone.”

Despite progress, the euro zone problems still pose a threat to world economic recovery, she said. “We are seeing a light recovery blowing in the spring wind but we are also seeing some very dark clouds on the horizon.”

World Bank President Bob Zoellick joined the call for deep and lasting economic reforms to secure the shaky global recovery.

“Countries both developing and developed need to focus on structural reforms that will be the drivers of future growth, otherwise the world will keep stumbling along,” he said at a news conference to kick off the spring meetings.

(Writing by Stella Dawson; additional reporting by Lesley Wroughton, Leika Kihara; Editing by Neil Stempleman)

WASHINGTON (Reuters) – The International Monetary Fund said on Wednesday it had raised $320 billion so far in a bid to boost its firepower to deal with the euro zone debt crisis, with Poland and Switzerland joining the effort.

IMF Managing Director Christine Lagarde said she had received commitments of $34 billion on Wednesday, including $8 billion from Poland and “a substantial amount” from Switzerland.

“Ensuring that the Fund has sufficient resources to tackle crises and to promote global economic stability is in the interests of all our members,” she said in a statement.

Lagarde is hoping to secure at least $400 billion in commitments from finance officials from around the globe, who meet this week in Washington under the auspices of the Group of 20 nations and the IMF and World Bank.

The issue has taken on new urgency given increased borrowing costs in Spain and Italy that have reignited fears the euro zone crisis could flare again, and that the fallout could imperil the global economic recovery.

The United States has declined to provide fresh funds, saying it had done its part by ensuring dollar liquidity for banks in Europe, but it threw its weight behind the fundraising effort on Wednesday.

“We’re actually very supportive of that process and we’ll be very supportive of it this week,” U.S. Treasury Timothy Geithner said, avoiding past rhetoric about Europe needing to do more first to erect its own financial firewall.

Europe had already said it would provide about $200 billion to the IMF and Japan pledged $60 billion on Tuesday, becoming the first non-European nation to offer a commitment.

Sweden said it would commit $10 billion and increase the amount to $14.7 billion later, while Denmark said it would give $7 billion. Norway pledged about $9.3 billion.

The effort to expand the IMF’s coffers is expected to dominate a meeting of G20 finance officials over dinner on Thursday and during the day on Friday. It will also be front and center at the IMF’s semi-annual session on Saturday.

Speaking at the Brookings Institution, Geithner said the commitments that had already flowed in should make it apparent to financial markets that the fund can bulk up quickly when necessary, a prospect that could ease crisis-related jitters.

He said it was a positive that the IMF could raise money quickly to “cushion if necessary the effects of European trauma” on the economies of other nations.

HOPING FOR A DEAL

While Europe has won some praise for actions it has taken to build up its own defenses to keep its debt troubles contained, the IMF warned this week that the crisis was still the single greatest threat to the world economy.

“Solving the issues in Europe is not about a firewall, it’s about decisions that will be taken in Europe over a sustained period of time; and it’s European actions that will be decisive here as opposed to outside money,” Bank of Canada Governor Mark Carney told a news conference.

Carney, who also heads the global Financial Stability Board, said the G20 had yet to reach a consensus on how to proceed.

Like the United States, Canada has ruled out putting more money into the IMF. “Really, the Europeans need to step up to the plate much more than they have,” Canadian Finance Minister Jim Flaherty told reporters in Toronto.

But Canada seemed increasingly isolated.

In Mexico, Finance Minister Jose Antonio Meade sounded an optimistic note about a deal for more IMF money. He said commitments made by Japan, Sweden and Denmark were a sign of good progress – a potentially significant comment because Mexico, as this year’s G20 chair, has a chance to shape not only the agenda but the outcome of this week’s talks.

“It creates a good environment for the meeting,” Meade said of money pledges.

Germany’s finance minister, Wolfgang Schaeuble, predicted in an interview with Reuters on Tuesday that a deal would be reached this week.

In a report on global financial stability, the IMF offered advice for Europe: set a course for fiscal union to match the existing monetary union so that unified policy can be passed that works equally for members and makes it harder for financial markets to single out the weakest for attack.

“European authorities need to provide investors with a clear vision of where monetary union is going, because the answer to this is more and better Europe, not less Europe,” IMF financial counselor Jose Vinals said as he issued the report.

The IMF urged central supervision of European banks. It also suggested that the European Union should consider injecting public capital into banks – a tactic the United States employed in 2008 when its banking system was at risk of collapse.

WASHINGTON (Reuters) – The United States on Wednesday threw its support behind a bid to boost the International Monetary Fund‘s financial resources, signaling greater satisfaction among Group of 20 nations with Europe‘s efforts to resolve its debt crisis.

The U.S. government will not chip in more money of its own, but warm words from Treasury Secretary Timothy Geithner for commitments by others may clear a path for G20 nations meeting this week in Washington to agree on a way to bolster the IMF’s war chest.

The idea is to bulk up so the Fund so it can aid non-European countries that get caught up in the maelstrom emanating from the euro zone.

The effort to expand the IMF’s coffers is expected to dominate a meeting of G20 financial officials over dinner on Thursday and during the day on Friday. It will also be front and center at the IMF’s semi-annual session on Saturday.

Speaking at the Brookings Institution, Geithner said commitments that have already flowed in should make it apparent to financial markets that the Fund can bulk up quickly when necessary, a prospect that could ease crisis-related jitters.

To underline the point, Japan’s ambassador to the United States, who was in the audience as Geithner took questions, stood to remind him that Tokyo was putting up $60 billion more for the IMF. Sweden and Denmark also have announced an additional $17 billion in commitments.

Geithner said it was a positive that the IMF could raise money quickly to “cushion if necessary the effects of European trauma” on the economies of other nations.

“We’re actually very supportive of that process and we’ll be very supportive of it this week,” he said. Even though he repeated that the United States will not chip in with more money for the IMF, Geithner avoided past rhetoric about Europe needing to do more first.

HOPING FOR A DEAL

IMF Managing Director Christine Lagarde said in an interview published on Tuesday that she hoped for agreement this week on raising the lending agency’s funds by at least $400 billion. In January, the IMF had said $600 billion was needed, but it cut that estimate as financial fears have eased.

While Europe has won some praise for actions it has taken to build up its own firewall, the IMF warned this week that the debt crisis is still the single greatest threat to a moderate global recovery from the 2007-2009 financial crisis.

“Solving the issues in Europe is not about a firewall, it’s about decisions that will be taken in Europe over a sustained period of time; and it’s European actions that will be decisive here as opposed to outside money,” Bank of Canada Governor Mark Carney told a news conference.

Carney, who also heads the global Financial Stability Board, said the G20 had yet to reach a consensus on how to proceed.

Like the United States, Canada has ruled out putting more money into the IMF. “Really, the Europeans need to step up to the plate much more than they have,” Canadian Finance Minister Jim Flaherty told reporters in Toronto.

But in Mexico, Finance Minister Jose Antonio Meade sounded an optimistic note about a deal for more IMF money. He said commitments made by Japan, Sweden and Denmark were a sign of good progress — a potentially significant comment because Mexico, as this year’s G20 chair, has a chance to shape not only the agenda but also the outcome.

“It creates a good environment for the meeting,” Meade said of money pledges.

Germany’s finance minister, Wolfgang Schaeuble, predicted in an interview with Reuters on Tuesday that a deal would be reached this week.

In report on global financial stability, the IMF offered advice for Europe: set a course for fiscal union to match the existing monetary union so that unified policy can be passed that works equally for members and makes it harder for financial markets to single out the weakest for attack.

“European authorities need to provide investors with a clear vision of where monetary union is going, because the answer to this is more and better Europe, not less Europe,” IMF financial counselor Jose Vinals said as he issued the report.

Among its recommendations, including central supervision of European banks, the IMF suggested that the European Union should also consider injecting capital into banks using public funds – a tactic the United States employed in 2008 when the banking system was at risk of collapse.

(Additional reporting by Stella Dawson and Rachelle Younglai in Washington, Krista Hughes in Puerto Vallarta and Louise Egan in Ottawa; Editing by Dan Grebler)

WASHINGTON (Reuters) – Global growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund said on Tuesday.

Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the euro zone have subsided, the IMF said.

“An uneasy calm remains. One has the feeling that at any moment things could well get very bad again,” IMF chief economist Olivier Blanchard told reporters as he detailed the Fund’s World Economic Outlook.

“Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present,” he said.

The global economy is on track to expand this year by 3.5 percent and by 4.1 percent in 2013, up slightly from 3.3 percent and 3.9 percent GDP output respectively that the IMF had forecast in January, when market concern was rampant that Greece could default and Italy and Spain were facing budget crises.

Since then, Greece has restructured its debt, Italy and Spain are adopting tough fiscal measures and euro-zone leaders have agreed to enlarge their bailout fund, causing financial market tensions to ease.

The United States, meanwhile, is gradually gaining momentum while China and other emerging economies appear on track for gradual slowdowns without crashing, the IMF said.

But the gains are precarious. Should the euro zone crisis erupt once more, it could trigger a widespread dumping of risky assets and rob 2 percent from global growth over two years and 3.5 percent from the euro zone, the Fund warned.

Additionally, a 50 percent increase in the price of oil would lower global output by 1.25 percent, it said.

To secure the global recovery, the IMF urged central banks in the United States, euro zone and Japan to stand ready to deliver further monetary easing; governments to exercise caution over the pace of budget cutbacks wherever feasible; and Europe to consider using public funds to recapitalize banks.

EURO ZONE SHAKY, U.S. IMPROVES

While European leaders have made “major progress” in building firewalls against financial contagion, the region faces a tricky balance of cutting government debt and restoring competitiveness without excessively stifling growth, it warned.

European banks also are deleveraging, which will reduce their balance sheets by $2.6 trillion over the next two years and slice about 1 percentage point from growth this year alone.

“Bad news on the macroeconomic or political front still carries the risk of triggering the type of dynamics we saw last fall,” the IMF said.

The euro zone is likely to endure a mild recession this year, shrinking by 0.3 percent and then posting 0.9 percent growth in 2013, the IMF said. That is a minor improvement from the 0.5 percent 2011 contraction followed by 0.8 percent growth that it forecast in January.

The United States, meanwhile, is “pulling itself up by its bootstraps” as domestic conditions improve, the IMF said, though the pace of growth remains constrained by an indebted consumer, high unemployment and a weak housing market.

The IMF lifted its forecast for the U.S. to 2.1 percent this year, up from 1.8 percent in January. For 2013, it nudged up the forecast to 2.4 percent from 2.2 percent. It sees unemployment this year holding at its current level of 8.2 percent and inching down in 2013 to 7.9 percent.

Despite the improvement, the fate of the United States remains deeply intertwined with that of the euro zone, where renewed problems could rob 1.5 percentage point from the outlook.

“A flare-up in the euro area from increased sovereign and bank stress could easily undermine confidence in the U.S. corporate sector and thereby squeeze investment and demand, undermining growth,” the IMF said.

The United States faces its own fiscal challenges, made worse by political fights that have delayed work on crafting a medium-term plan to reduce its budget deficit. If tax cuts expire at the end of this year and planned budget cuts kick in, the United States will face an abrupt fiscal tightening.

“Such massive adjustment could significantly undermine the economic recovery,” the IMF said.

EMERGING ECONOMIES RESILIENT

The IMF is sanguine on the outlook for China, leaving its growth forecasts unchanged at 8.2 percent this year and 8.8 percent in 2013. Strong domestic investment and growing consumption as the middle class expands are supporting growth offsetting a slowing exports.

IMF’s deputy director of research Joerg Decressin, speaking at a news conference, welcomed Beijing’s decision last weekend to allow China’s currency to fluctuate within a narrow band and said more flexibility would help in rebalancing its economy toward internal consumption. He said it was unclear whether the Chinese yuan was fairly valued, since the IMF is reviewing its methodology for evaluating currencies.

Emerging and developing economies overall are seen growing by 5.7 percent this year and by 6 percent next year, upwardly revised from 5.4 percent and 5.9 percent from January.

Their challenge is to prevent overheating while retaining room for fiscal and monetary stimulus should dangers from the euro zone or high oil prices spill over, the IMF said.

(Additional reporting by Lesley Wroughton, Antonella Ciancio and Lucia Mutikani; Editing by Neil Stempleman and Chizu Nomiyama)