WASHINGTON - WORLD leaders prepared on Saturday to adopt broad outlines to attack weak spots in the global financial system on three fronts, with plans to meet again early in 2009 to fine-tune efforts to end the worldwide economic downturn and guard against major economic upheavals in the future.

VIDEO Bush hosts leaders at White House (1:18) What world leaders want WORLD leaders assembled in Washington to grapple with the global financial crisis. There are conflicting ideas about how to deal with the problem, what reforms are needed and what should fall under global regulations. A look at the approaches advocated by various countries: --- ... more

European officials at the extraordinary Group of 20 summit in the US capital said a draft agreement among the world leaders likely would call for intensified government efforts at bolstering national economies, cooperation on international regulation of the financial system and reform of global structures to aide needy developing countries.

British Prime Minister Gordon Brown said early on Saturday that world leaders were making progress in what he termed difficult talks, but that final agreement on the particulars of global regulation and reform were not likely to come out of the Washington meeting.

He added, however, the assembled leaders would be able to agree on 'quick action results', on fiscal policy, like tax cuts or public spending increases.

European officials, speaking on condition of anonymity because the draft agreement was still under negotiation, said a follow-up meeting was likely in April in London, Paris or Tokyo, after President-elect Barack Obama takes over in the White House.

In an effort to avoid surprise calamities like the one now sweeping the globe, the assembled leaders were expected to focus on a commitment to tougher accounting rules and greater transparency.

They formally opened the session with an sumptuous White House dinner before getting down to business on Saturday in closed-door talks.

The leaders were on track to approve measures to make the world financial system more accountable to investors and more transparent to regulators, officials said. That would included more effective accounting rules governing how companies value their assets, a weakness seen as partly responsible for the current financial crisis.

A new early warning system would look for signs of problems like those in the US housing market and related overuse of mortgage-backed securities.

On Friday, the heads of the International Monetary Fund, the world's financial firefighter, and the Financial Stability Forum, a group that includes central banks and major financial regulators, said they would cooperate on 'early warning exercises' to detect vulnerabilities.

Also, a new 'college of supervisors' would gather global regulators to scrutinise the world's largest financial institutions together to compare notes as they seek to spot excessive risk-taking.

Altogether, the US preference for boosting oversight of shaky financial markets seemed to be holding sway over Europe's desire for tougher internationally enforced regulation.

'Billions of hardworking people are counting on us,' President George W. Bush said on a night when urgent motorcades swept presidents and prime ministers through a dark Washington mist to the White House.

A second summit is envisioned in early spring, after Mr Barack Obama becomes president. The first meeting, called by Mr Bush, falls in a period of transition that inevitably leaves unclear what actions the US is ready to take in the months ahead.

The president-elect stayed away from the meeting, but designated former Secretary of State Madeleine Albright and former Rep Jim Leach to represent him in meetings with leaders on the sidelines.

They saw the leaders of Argentina, Mexico and South Korea on Friday and had talks scheduled with lower-level representatives from several other nations both Friday and Saturday.

In addition to Mr Brown, leaders from France, Germany, Russia, China and India were among those in Washington.

The summit, meant to be the first in a series, was arranged to discus at might still need to be done to turn the world's economies back from the edge of disaster and explore ways to revamp the global financial architecture to prevent similar meltdowns in the future.

New reminders of the urgency facing the leaders came even as they poured toward the US capital city from around the globe.

The government reported that sales by American retailers fell by a record amount last month. Federal Reserve Chairman Ben Bernanke hinted at another interest rate cut to encourage consumers. Fearing another Wall Street plunge if the summit produces little, the White House has been lowering expectations as fast as other nations have been raising them.

'This problem did not develop overnight and it will not be solved overnight,' Mr Bush said in a dinner toast.

The agreement lacks big, splashy elements, such as the establishment of a single global regulator or strict new regulation of financial firms or products.

Europeans had wanted to close loopholes that allow some financial institutions to evade regulation. They also want to ensure supervision for all major financial players, including credit ratings agencies or funds carrying high amounts of debt. They want a pledge for concrete changes in just 100 days.

But Mr Bush bet that including developing nations such as China, India and Brazil in the talks would act as a brake on any push for intrusive regulation. Red-hot emerging economies bristle at being restricted just as they are trying to catch up to the developed world.

Even the part of the agreement that lays blame avoids specifically pointing a finger primarily where many wanted it: what they see as a freewheeling US system where easy credit, risky investing and lax oversight have become the norm.

Indeed, the crisis started when the bubble in the US housing market burst in August, leading to a ripple effect of events as mortgage-related investments soured, financial companies suffered huge losses and lending locked into a freeze that spread around the globe.

The agreement says broadly that policymakers and regulators failed to address the risks building up in financial markets.

Before leaders arrived, Mr Bush warned for the second day in a row of the dangers - in his view - of overeager government intervention.

He said 'reforms in the financial sector are essential' but that strict new regulations would crush the global economy instead of protect it.

In Berlin, German Chancellor Angela Merkel took issue with the tenor of Mr Bush's remarks before leaving for the Washington gathering.

Without referring directly to them, she told reporters: 'I must say I am somewhat surprised that these warning calls are already coming so shortly after the crisis broke out. We have not yet overcome it.' She said her government will be 'very happy' to give up state ownership in banks.

Her government came up with a rescue package worth up to euro500 billion (S$949.2 billion) that is injecting fresh capital into troubled banks by taking stakes in them.

Mr Bush got a boost from Mr Brown, who used rhetoric similar to Bush's in talking about a need to keep trade flowing and markets free.

'Protectionism is the road to ruin,' Mr Brown told the Council on Foreign Relations in New York.

He has been among the leaders pushing for nations at the summit to pledge coordinated stimulus spending worldwide to combat the downturn that is squeezing millions of families and businesses.

Japanese Prime Minister Taro Aso's spokesman said Mr Aso believes the world leaders joining him in Washington to confront the global economic turmoil can learn valuable lessons from Japan's efforts to recover from its own financial crisis in the 1990s.

During that decade, the people running Japan's economy, the world's second-largest, were criticised strongly for doing too little to improve the banking sector's health after a stock and real estate bubble burst.

Mr Aso's message to leaders will be that banks must quickly and fully disclose their nonperforming loans and remove them from their balance sheets, spokesman Kazuo Kodama told reporters.

Leaders have 'no luxury to engage in blame games,' Mr Kodama said, but they should engage in 'candid soul-searching on why this happened'. -- AP