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* Says euro zone cbanks determined to avert market malfunction
* Ready to use 'non-standard' measures to this end
* Peers more guarded; Mersch says bonds need group decision
* Draghi says governments must deal with roots of crisis
* Sees high growth risks, suggests he favours rate cut soon
By James Mackenzie
ROME, Oct 26 (Reuters) - The European Central Bank's incoming president signalled on Wednesday the bank stood ready to carry on buying the bonds of troubled euro zone governments, suggesting he is ready to intervene to steady markets in the face of German misgivings.
Mario Draghi also said the 17-nation euro area faces significant growth risks -- a comment that hints that he may be ready to support a cut in interest rates soon after he takes over from Jean-Claude Trichet next week.
The Italian made the comments as European leaders headed to Brussels for a crunch summit aimed at getting a firm grip on the euro zone debt crisis, with France and Germany at odds over how much the ECB should be involved in the policy response.
"The Eurosystem is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission," Draghi said at a conference in Rome.
Draghi used language similar to that employed by the ECB to explain the reactivation of its bond-buying programme in August, when it said the plan was aimed at "restoring a better transmission of our monetary policy decisions taking account of dysfunctional market segments".
The central bank launched the bond-buying plan in May last year, intervening in debt markets to lower the borrowing costs of countries snared by the crisis that has since escalated and now risks tipping the world's leading economies into recession.
Draghi appeared to meet resistance, in tone at least, from some other ECB policymakers to his suggestion that the bank could continue buying bonds.
"People who say only the central bank can solve the crisis would overload it," ECB Executive Board member Juergen Stark said. "This would also endanger its independence."
Yves Mersch, chief of Luxembourg's central bank and a member of the ECB's policymaking Governing Council, declined to comment when asked about the possibility of the ECB keeping its bond purchase programme open, but added:
"The Governing Council is the only body that can take decisions in this field."
The ECB's non-standard policy measures -- the crisis response it has rolled out on top of interest rate policy moves -- have also included the provision of unlimited liquidity to banks, and purchases of covered bonds.
In its latest provision of funds, the ECB lent banks 57 billion euros on Wednesday in the first of two new offerings of one-year loans designed to give institutions greater funding security and neutralise the threat of a new credit crunch.
The ECB decided in August to reactivate the programme and buy the bonds of Italy and Spain after they began to get buffeted by the debt crisis.
The decision was far from unanimous, however, and led to the resignation of Stark -- the second heavyweight German policymaker to quit the ECB this year over the plan.
Bundesbank chief Axel Weber, who had been in pole position to succeed Trichet, departed in April and in doing so opened the way for Draghi to take the ECB presidency.
Draghi's comments set him apart from Trichet and opened the way for continued ECB bond-buying, though the Italian stuck to the established line that is up to governments to deal with the roots of the crisis.
Trichet had signalled that the central bank was keen to withdraw from the bond-buying policy once the euro zone's EFSF rescue fund gained new powers to intervene on bond markets.
Draghi's succession to the ECB presidency coincides with other key personnel changes at the bank and the arrival of new, younger policymakers with a more pragmatic approach than some of their predecessors.
Stark, previously Bundesbank vice president, will be replaced by Joerg Asmussen -- Germany's 44-year-old deputy finance minister who is a self-styled pragmatist.
Draghi, who has worked hard to allay fears in Germany that he could be soft on monetary policy, pressed governments to put their budgets in order rather than look to the ECB to address the crisis -- an approach he said would not work.
"The interventions prevent imbalances from worsening; they're not enough on their own to resolve the underlying causes," Draghi said, adding that financial system governance in the euro zone should be strengthened and instruments designed to manage the crisis should be activated immediately.
"But without a resolute and durable response which comes from appropriate national policies, which remove imbalances in public finances by promoting growth, the first objective will not be able to be achieved and the second would only be a palliative cure," he said.
Diplomats said Germany was likely to get its way against France in the stand-off over how much the ECB, the ultimate defender of the euro, should be involved in trying to resolve the crisis.
Many analysts believe the ECB is the only institution with the financial firepower to convince nervous and sceptical markets that the crisis can be contained.
Turning to the economic outlook for the euro zone, Draghi said activity in the bloc was being squeezed by a slowdown in global demand, a fall in confidence among businesses and families and by the negative impact of the crisis on financing conditions.
"The risks of a further weakening in growth prospects are significant, in a context of great uncertainty," he said.
The comment suggests he may favour a cut in the ECB's interest rates from 1.50 percent.
"He himself is probably very much in favour of cutting interest rates," said Berenberg economist Christian Schulz, noting the negative tone to Draghi's comments.
"We'll see if they manage to get that through quickly in November or whether they wait until December, as we would expect."
Stark said: "The current interest rates are adequate."