UPDATE 7-IMF seeks $600 bln in new funds, G20 to discuss
* IMF needs to raise $600 bln, sources say
* Loans needed to deal with euro area fallout
* G20 to discuss; many countries want extra steps from Europe
* U.S., Canada, Japan and South Korea resist idea
WASHINGTON/MEXICO CITY, Jan 18 (Reuters) - The IMF is seeking to more than double its war chest by raising $600 billion in new resources to help countries deal with the fallout of the euro zone debt crisis, but the plan faces roadblocks from the United States and other countries.
The United States and Canada said on Wednesday Europe must put up more of its own money to resolve its sovereign debt crisis, raising doubts G20 talks in Mexico this week can lay the ground for a deal on bolstering IMF resources.
Japan and South Korea also want Europe to do more and China might insist a number of conditions are met before it supports a boost in IMF resources.
"We continue to believe that the IMF can play an important role in Europe, but only as a supplement to Europe's own efforts," a U.S. Treasury spokesperson said. "The IMF cannot substitute for a robust euro area firewall."
Group of 20 deputy officials meet in Mexico City on Thursday and Friday to discuss boosting IMF resources. Any outcome would need leaders' signoff. G20 finance ministers meet in late February.
The IMF plan to boost its lending capacity eased worries on financial markets about Europe's funding difficulties, boosting the value of the euro.
IMF sources said the world faces a $1 trillion financing gap over the next two years if global economic conditions worsened considerably. The IMF's current lending capacity is about $380 billion.
The sources, present at an IMF board meeting on the issue on Tuesday, said the Fund was seeking to raise up to $600 billion to meet those potential financing needs. Of that, $500 billion would be for lending and $100 billion would be a "protection buffer."
An IMF spokesman confirmed the Fund was seeking to raise up to $500 billion in additional lending resources. He said that amount included a European commitment to inject $200 billion into IMF resources.
"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations," he said.
The United States repeated that it would not contribute more resources to the IMF.
With a strained budget at home, some U.S. congressional Republicans have threatened to yank $100 billion in U.S. money to the IMF if the funds are used to bail out euro zone countries. The White House is unlikely to want to take the issue on as President Barack Obama seeks re-election this year.
"We have told our international partners that we have no intention to seek additional resources for the IMF," a Treasury spokeswoman said.
"Many countries want the Europeans to move ahead with tougher and clearer measures, which at this moment translates to more resources to its stability fund," said a senior Brazilian government source attending the G20 officials' meeting in Mexico.
China's Foreign Ministry said Beijing stood by G20 commitments to ensure the IMF has ample funds to cope with the financial crisis, but it stopped short of saying the country was ready to put up more cash.
Indeed, China is likely to resist moves to increase IMF resources unless a number of conditions are met, said Xiang Songzuo, vice director of the International Monetary Institute in Beijing, a high-level policy think tank.
He said these would include more voting power for China and other emerging nations, changing the stance of IMF policy more to meet the concerns of emerging countries -- such as on stabilising capital flows and exchange rates -- and making the mechanism for crisis rescue much more transparent.
"The process of negotiating all of that would be quite time consuming," Xiang said.
Bank of Canada Governor Mark Carney said it was not clear European governments had done everything necessary to make sure they could fund themselves at sustainable interest rates over the next few years.
"If it makes sense to enhance the resources of the IMF, the principal focus, it would seem, should be on dealing with fallout of the European crisis for innocent bystanders," he told a news briefing in Ottawa.
Japan stands ready to support the IMF fund raising drive but it wants to see strong efforts by European countries to resolve the crisis first, a senior government source said in Tokyo.
South Korea is also pressing for discussions first about Europe's contribution and for it to agree on additional measures, another source connected to the process said. European nations have argued that they have done enough and were calling for more IMF resources now.
"If, with the parallel discussion, we can achieve extra measures from the Europeans and afterwards agree on promises of additional resources for the IMF from non-European countries in the G20, I think it would be a good result," the source said.
IMF Managing Director Christine Lagarde said the IMF management would explore options for increasing the fund's firepower.
Europe's debt crisis is widely seen as the biggest threat to the global economy. Many countries used up a lot of their financial firepower fighting the global downturn in 2008 and 2009. A fresh global slump would raise fears more countries might need to be rescued by the IMF.
Indeed, the World Bank on Wednesday said Europe was probably already in recession and the euro area debt crisis posed a "real" risk to the global economy. The IMF has warned it will cut its global growth projections when it updates its forecast on Jan. 24.
With credit downgrades in nine euro zone countries by Standard & Poor's last week, including France, and uncertainty over Greek debt talks that risk pushing the country into default, the IMF board has urged euro zone leaders to take steps to contain the crisis.
The board called for policies that would address the European crisis and for euro zone policymakers to make sure there is enough money available to tackle the bloc's debt problems effectively.