* Fed stimulus withdrawal eyed warily at G20
* Communique commits to economic rebalancing, careful steps
* China allows banks to lend more cheaply
* Japan pressed on structural reforms
* Shift towards growth at expense of debt-cutting
By Tetsushi Kajimoto and Alessandra Prentice
MOSCOW, July 20 The Group of 20 nations put
growth ahead of austerity as it seeks to rebalance a multi-speed
global economy, pledging to shift policy carefully so that
recovery is not derailed by volatile financial markets.
Finance ministers and central bank governors meeting in
Moscow on Saturday will put the finishing touches to a joint
communique that delegates said was not changed after they met
for dinner on Friday night.
Indications that the U.S. Federal Reserve would scale back
its monetary stimulus were the focus of intense interest,
especially from emerging economies hit by an ensuing selloff in
stocks and bonds, and a flight to the dollar.
While the U.S. recovery is gaining traction, China's export
motor is sputtering, Japan's bid to break out of deflation has
not reached escape velocity, and demand in the euro zone is too
weak to sustain a job-creating recovery.
"We do not see any revival of growth in Europe yet, and
Japan - we're keeping our fingers crossed," said Indian Finance
Minister Chidambaram Palaniappan.
"The best case scenario for today would be for the advanced
economies to get growth going. They must keep in mind the impact
of their actions on the large emerging economies."
A final draft, obtained by Reuters, said an action plan to
boost jobs and growth, while rebalancing global demand and debt,
would be readied for a G20 leaders summit hosted by President
Vladimir Putin in September.
"We remain mindful of the risks and unintended negative side
effects of extended periods of monetary easing," the draft said.
"Future changes to monetary policy settings will continue to be
carefully calibrated and clearly communicated."
In return for its pledge to 'message' its monetary policy
intentions clearly, Washington managed to ensure that the text
contained no binding fiscal targets, saying that consolidation
should be "calibrated" to economic conditions.
Sources at the meeting said Germany was less assertive than
previously in seeking binding targets to reduce borrowing to
follow on from a deal struck in Toronto in 2010, with the
improving U.S. economy adding weight to Washington's call to
focus on growth.
With youth unemployment rates approaching 60 percent in euro
zone strugglers Greece and Spain, the growth versus austerity
debate has shifted - reflected in the fact that G20 finance and
labour ministers held a joint session on Friday.
The crisis in the euro-zone periphery has been exacerbated
by capital outflows, and the communique pledged to move
"decisively" towards creating a banking union in Europe that
could revive cross-border lending.
"The priority in the short term is growth, growth, growth,"
French Finance Minister Pierre Moscovici told reporters.
Unlike at previous G20 gatherings, exchange rates and the
threat of competitive devaluations barely figured, delegates
TREAD WITH CARE
A paper that International Monetary Fund staff prepared for
the Moscow meeting warned financial market turmoil could deepen
unless policymakers were careful.
"The current market turbulence could continue and deepen,"
the paper, seen by Reuters, said. "The eventual exit from low
rates and unconventional monetary policy in advanced economies
could pose challenges for emerging economies, especially if it
proceeds too fast or is not well communicated."
Ben Bernanke's announcement two months ago that the Fed may
start to wind down its $85 billion in monthly bond purchases
sparked a panicky sell-off, particularly in emerging markets.
Investors were calmed by testimony to Congress this week by
Bernanke, who is not in Moscow, although he said the exit plan
from money-printing remained on the cards.
The G20 accounts for 90 percent of the world economy and
two-thirds of its population - many living in the large emerging
economies at greatest risk of a reversal of capital inflows that
have been one of the side effects of the Fed stimulus.
China is under pressure to encourage domestic demand-driven
growth and allow greater exchange rate flexibility as part of
wider efforts to rebalance the global economy which features a
huge Chinese surplus and matching U.S. deficit.
Beijing offered an early olive branch, removing a floor on
the rates banks can charge clients for loans, which should
reduce the cost of borrowing for companies and households. Yet
this was not discussed at the G20 talks.
Delegates said the G20 ministers would discuss China's
policy mix on Saturday. Also on the agenda will be the state of
play with global financial regulation, including the need to
look at "too big to fail" insurers, and energy sustainability
and climate finance.
Japanese Finance Minister Taro Aso labelled China's move a
step in the right direction. Bank of Japan Governor Haruhiko
Kuroda said he would "strongly pursue" quantitative easing
policies to lift growth and end deflation.
Japan, which holds an upper house election on Sunday, in
turn drew criticism for giving little detail on structural
reforms billed as the 'third arrow' of Prime Minister Shinzo
Abe's economic turnaround plan, G20 sources said.