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BEIJING/SAO PAULO (Reuters) - China launched a huge stimulus plan on Sunday worth nearly $600 billion, kicking off what could be a round of big spending or interest rate cuts by leading economies to stave off a recession in many countries.
In Brazil, finance ministers and central bank governors representing 90 percent of the world's economy said they would take "all necessary measures" to get financial markets back to normal and counter the backlash of the credit crisis.
Many developed economies are now facing a contraction next year after lending from banks suddenly dried up, and newer powers such as China have been caught up in the domino effect.
World leaders meet next weekend to discuss precisely what measures they need to work out in coming months, and how much more say emerging economies will have over global finance.
China's official Xinhua news agency said the world's fourth-largest economy approved 4 trillion yuan ($586 billion) in new government spending between now and 2010, focused largely on infrastructure and social projects.
The move was hailed by the head of the International Monetary Fund, Dominique Strauss-Kahn, who said it would have a positive effect on the world economy.
China's cabinet also announced a shift to a "moderately easy" monetary policy, suggesting more rate cuts.
"'Easy' monetary policy could mean, quantitatively speaking, more money supply and a looser market liquidity," the head of China's central bank, Zhou Xiaochuan, told reporters in Brazil. "It can also be reflected in prices, for example the bank lending interest rate could become lower."
China has cut rate cuts three times since mid-September.
"This is pretty major," said Arthur Kroeber, head of Dragonomics, a Beijing economic consultant. "It reflects the official view of how serious this problem is and shows that this is a government that can mobilize enormous resources to stimulate the economy when they put their minds to it."
By comparison, the United States sent out about $100 billion in tax rebate checks this summer, while Germany last week agreed to a 50 billion euro pump-priming plan.
China's Xiaochuan, attending the meetings in Brazil, said on Saturday the Asian export powerhouse, which is one of the few remaining engines of global growth, expected growth of between 8 percent and 9 percent in 2009.
Some economists have predicted growth in China could slow to less than 8 percent in 2009, down from double-digit levels in the past five years until this year.
Also on Sunday, Taiwan's central bank unexpectedly cut interest rates by 25 basis points, its fourth reduction in just over a month on recession fears for its export-led economy.
In the United States, which is heading for a bleak 2009, senior aides to President-elect Barack Obama said the crisis would not stop him from expanding health care, overhauling education and energy policy, and passing a middle-class tax cut soon after he takes office in January.
In Brazil, ministers and central bankers promised they would "urgently take forward" proposals put up by leaders at next week's summit in Washington, D.C., although there was little concrete action agreed to at their meeting in Sao Paulo.
"There is consensus that we need coordinated action to deal with the crisis," Brazilian Finance Minister Guido Mantega told reporters after an annual meeting of the G20 group of advanced and big emerging economies, which was dominated by the crisis.
"It requires global action and so there is a need for institutions that are suitable for this kind of common and coordinated action. This has not yet been resolved but the G20 is a strong candidate to be the coordinator."
Brazil and other emerging economies have demanded more of a voice in management of global finance that remains the preserve of rich countries, which are members of the G7 group.
South African Finance Minister Trevor Manuel told reporters the G7 can no longer be "a little club on its own."
In a communique, the G20 said it saw the need for comprehensive reform of the Bretton Woods institutions, such as the IMF and the World Bank, "so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges."
In a sign of possible future wrangling over how much real power would be ceded to developing countries, Canada's central bank governor said the G7 remained effective.
The G20 declaration also called for regulation or oversight of all sectors of the financial industry, "as appropriate," language that appeared to reflect differences between countries over how sectors such as hedge funds should be treated.
In Europe, the main stimulus for growth would come from interest rate cuts, French Finance Minister Christine Lagarde said, reiterating her previous comments that a new European Central Bank rate cut was possible "in the next few weeks."
Writing by William Schomberg, Editing by Todd Benson and Maureen Bavdek