EU to press for reform, Asia joins bailout bandwagon

LONDON/SINGAPORE (Reuters) - European leaders will press on Wednesday for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks to avert a financial meltdown.

EU leaders meet in Brussels just days after stumping up 2.2 trillion euros ($3,023 billion) to rescue European banks and jolt frozen money markets -- at the heart worst financial crisis since the Great Depression -- into life.

Southeast Asian nations backed by Japan, South Korea, China and the World Bank, were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to buy bad debt and help banks.

The United States put its shoulder to the wheel on Tuesday by offering to take $250 billion worth of stakes in nine top banks, an astonishing move in the home of free market capitalism which suggests an appetite for new regulation even there.

Treasury Secretary Henry Paulson said government part-ownership of banks was "objectionable" but vital to prevent a worsening of the crisis, which began with a U.S. housing market collapse and now threatens economies worldwide.

The Southeast Asian fund, to be set up with $10 billion World Bank backing, will buy up toxic debts and support banks in the region hit by the financial crisis, Philippines President Gloria Macapagal Arroyo said.

Leaders including French President Nicolas Sarkozy and Britain's Gordon Brown say the global turmoil shows the world's post-World War Two financial architecture is no longer adequate.

NEW 'BRETTON WOODS'

As current EU President, Sarkozy will seek the backing of the other 26 EU states to hold an international conference as early as next month on reforming the world financial order put in place by the 1944 Bretton Woods conference.

Prime Minister Gordon Brown, who has seen his woeful domestic opinion poll rating galvanized by his government's rescue efforts, is also advocating a "new Bretton Woods."

Measures should entail a rethink of supervisory rules on markets, banks, mortgage firms, hedge funds and private equity, European Commission chief Jose Manuel Barroso said on Tuesday.

Other reforms in the pipeline range from higher guarantees for bank deposits to clampdowns on executive pay.

However, Japanese Prime Minister Taro Aso said on Wednesday a meeting of world leaders would be pointless without fresh commitments to inject public funds into financial firms.

Even if a banking meltdown has been averted, a recession has not -- a fact markets quickly turned their focus to.

Shares turned lower late in Wall Street trade. Tokyo stocks fell before recovering to end 1.1 percent higher. But most Asian equity markets were 1-3 percent lower and European stocks opened down 0.5 percent.

Two top Federal Reserve officials flagged risks to the world's biggest economy and Bank of Japan Governor Masaaki Shirakawa warned global markets remained under severe strain.

"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," Janet Yellen, President of the Federal Reserve Bank of San Francisco, said on Tuesday.

Only a handful of countries, including New Zealand, Ireland and Singapore have so far officially slipped into recession but Japan and Germany, the world's second- and third-biggest economies, have said they are on the brink of contraction.

Governments have pledged around $3.2 trillion -- more than the annual output of Germany -- in a variety of schemes that guarantee bank deposits, bank-to-bank lending, and the purchase of new securities to shore up bank capital.

That money is on top of open-ended central bank commitments to inject temporary funds to get interbank lending moving again and a coordinated round of interest rate cuts last week.

On the money markets, overnight dollar deposit rates were quoted around 2.0-2.2 percent in Asia, just above the Fed's 1.5 percent target. In another sign of easing strains, the Bank of Japan refrained from a same-day cash injection for the first time in almost a month.