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West urges financial overhaul; US, France to meet

European leaders pressed for tougher world banking rules on Friday to protect economies from crisis, the day before a meeting of the US and French presidents.

US housing starts fell sharply in September and the world's biggest oilfield services company, Schlumberger Ltd, warned that the financial crisis gripping the world would damp its operations into next year.

Eastern European countries turned to foreign lenders to bolster their financial systems, while Asian nations struggled for their own solutions.

To prevent any repeat of the crisis, French President Nicolas Sarkozy has said he would raise the prospect of a global summit to deal with regulatory issues at a meeting with US President George W. Bush on Saturday.

He said the summit should make decisions on transparency, global regulatory standards, cross-border supervision and an early warning system.

White House spokeswoman Dana Perino said the meeting of Bush, Sarkozy and European Commission President Jose Manuel Barroso was not connected to the global summit.

But British Prime Minister Gordon Brown said they would discuss “urgent reforms of the international financial system.”

He said the post-World War II financial institutions were out of date.

“They have to be rebuilt for a wholly new era in which there is global, not national, competition and open, not closed, economies," he wrote in the Washington Post newspaper.”

Britain's financial watchdog agreed, telling the Guardian newspaper it was time for regulators “to wipe the slate clean.”

Adair Turner, chairman of Britain's Financial Services Authority, said the global banking system was past the danger of systemic meltdown although the world faced recession.

“There's no chance of a 1929-1933 depression. We know the lessons, and we know how to stop it happening again,” he told the Guardian.

The US government said construction starts on new homes fell 6.3% in September to their slowest pace since August 1982.

Wall Street stock index futures extended their losses after the data, indicating the stock market would open lower.

The day after oil prices fell below $70 a barrel for the first time in 14 months, Schlumberger said weaker drilling activity in North America and some emerging markets would hit its operations into next year.

Warren Buffett, the world's richest man, wrote in the New York Times that he was buying US stocks for his personal account, saying the market was likely to move higher before sentiment or the economy changed. “So if you wait for the robins, spring will be over,” he wrote.

Ukraine said the International Monetary Fund was prepared to give it $14 billion in credit, while Hungary slashed its growth forecast after agreeing on a €5-billion deal with the European Central Bank to keep euros flowing through its banking system.

Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail, will decide within a week whether to take an IMF loan.

A Ukraine presidential spokeswoman said: “President Viktor Yushchenko would hold a meeting with officials from the IMF, which is ready to give Ukraine credit of $14 billion for the stabilization of our country's financial sector.”

In neighboring Russia, hit hard by the crisis and international wariness after Russia's brief war with former Soviet Georgia, Finance Minister Alexei Kudrin said investors had pulled $33 billion out of the country in August-September.

He said stocks would fall further.

A source said another Russian bank could be nationalized, bringing the total to four.

Hungary slashed its forecast for growth next year by almost two percentage points, showing its economy set to suffer even if it can quell market upheaval around its banks and finances.

On world share markets, buying of cheap bank stocks helped buoy prices though they later relinquished some of their gains.

Equities rose across the world on encouraging signals from technology firms. The FTSEurofirst 300 index of top European shares was up 1.7%.

In Asia, governments scrambled to find ways to shore up their banks and try to combat an economic slowdown.

Reflecting growing alarm over the widening credit crisis, a panel of Japan's ruling Liberal Democratic Party was considering schemes to recapitalize big banks with government money, Kyodo news agency reported.

Japan's Nikkei index closed 2.78% higher.

In South Korea, authorities pledged action to stabilize markets. Media reports said the steps, to be announced on Sunday, could include funding for local banks struggling to find international banks willing to lend dollars.

Australia's prime minister held a summit with industry leaders who said credit was drying up and smaller firms were collapsing despite assurances the economy was in good shape.

Singapore and Malaysia both said they would guarantee all bank deposits until 2010, following similar moves worldwide.

After world governments pledged $3.2 trillion to stabilize the financial sector, money markets have shown tentative signs of healing, though interbank lending is still tentative at best.

The interbank cost of borrowing overnight dollars fell again in Europe although longer rates, including those for euros and sterling, were slower to ease with banks still reluctant to lend for longer periods. (Reuters)