The International Monetary Fund said it backed a Group of Seven plan to try to stabilize markets and urged 'exceptional vigilance, coordination and readiness to take bold action' to contain a firestorm that pushed global stocks to five-year lows on Friday.

French President Nicolas Sarkozy and German Chancellor Angela Merkel, meeting in France, said they had 'prepared a certain number of decisions' to present at a European summit on Sunday to try to restore normal flows in blocked credit markets.

France's Economy Minister, Christine Lagarde, said just before leaving Washington the Sunday gathering would go beyond talking about remedies to 'put meat, muscles on the bones of that skeleton and to develop, follow up and execute upon it.'

The United States appealed for patience but the IMF said time was short after the Group of Seven industrialised nations failed to agree on concrete measures to end the crisis at a meeting on Friday.

'Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,' IMF chief Dominique Strauss-Kahn said.

Mr Strauss-Kahn later expressed hope that government actions will prove powerful enough to persuade banks to resume lending and bring an end to a spreading credit crunch.

'In the coming days ... what I expect is that the reaction by the different institutions will be positive enough to unfreeze the different markets and to restore the necessary funding,' he said at a news conference.

Investors gravely hurt
US President George W. Bush met with G7 economic chiefs and officials from the IMF and World Bank and said top industrial nations would work together to solve the crisis.

'I'm confident that the world's major economies can overcome the challenges we face,' Mr Bush said, adding that Washington was working as fast as possible to implement a US$700 billion (S$1 trillion) financial bailout package approved a week ago.

'The benefits will not be realised overnight, but as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions.'

The G7 - the United States, Britain, France, Germany, Italy, Japan and Canada - met on Friday and then joined key emerging-market nations for a meeting of the Group of 20 on Saturday.

Emerging economies like China, Brazil, India and South Africa now are feeling the impact of the market slump.

Mr Bush made a surprise appearance at the G20 where he acknowledged the market disruption originated in US mortgage markets but warned everyone must help to resolve it.

'It doesn't matter if you're a rich country or a poor country, a developed country or a developing country - we're all in this together. We must work collaboratively,' he said.

European leaders on Sunday will discuss how to restore credit availability, with a British initiative to guarantee lending between banks as one of the topics, a source close to the French presidency said.

France wary of guarantees
Ms Lagarde sounded a cautious note about the British proposal, saying guarantees of bank-to-bank lending or bank deposits would have to to be checked to ensure they don't distort European markets. If one country offers guarantees, it can add pressure on its neighbors to do the same.

Britain's rescue plan, launched last week, makes available £50 billion pounds (S$126 billion) of taxpayers' money for injection into its banks and, crucially, calls for underwriting interbank lending, which has all but frozen around the globe.

Media reports on Saturday said Germany was readying a rescue package that could be worth up to US$549 billion, including the injection of equity capital worth 'double digit' billions into its banks and guarantees for interbank lending.

The G7 rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks can raise money but they offered no specifics on collective action.

Mr Kenneth Rogoff, a Harvard University professor and former IMF chief economist, said the G7 would have been better served adopting some version of the British plan so that banks would feel confident enough to loosen their grip on lending.

'Saying that they'll take all steps necessary leaves hanging the question of whether they know what is best and necessary,' he told Reuters. 'It was a signature moment for the G7. I think markets are going to be very disappointed.' -- REUTERS

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