Europe urges global finance reform

The Tokyo stock market suffered its worst loss for two decades, closing down more than 11 percent and European indices shed almost 6.0 percent in early deals, rallying to show losses around 3.0 percent later, after the Dow Jones index fell 7.8 percent.

Amid mounting recession fears, an emergency summit of the Group of Eight wealthy powers is expected to be held in November and President Nicolas Sarkozy of France said he would press Europe's calls for drastic reform of the financial system when he meets U.S. President George W. Bush this weekend.

EU leaders meeting in Brussels demanded greater oversight in Europe after the financial turmoil forced them to commit more than 1.8 trillion euros ($2.45 trillion) to banks and the money markets.

In a draft statement likely to be endorsed at a summit, the 27 EU leaders said they would set up a financial crisis cell to act as an early warning system and revived plans to beef up Europe-wide supervision of cross-border finance groups.

"Europe will present an ambitious common vision. We do not want (the crisis) to start again," Sarkozy told journalists in Brussels late Wednesday.

"We are really determined to go all the way on this overhaul," he added.

British Prime Minister Gordon Brown, whose rescue of British banks has earned global praise, said the world needs a better way "of supervising our financial system, we need an early-warning system."

He predicted an agreement within days on holding a G8 meeting with the emerging economic powers such as China, India and Brazil "to take common action... for very large and very radical changes," he said.

Brown said that by the end of the year he would also like to see an international "college of supervisors" set up to oversee "30 major international companies," which he did not name.

Switzerland was forced to take emergency measures to prop up its key banking sector, pouring almost $60 billion into the biggest bank UBS, one of heaviest losers from the US bad mortgage subprime crisis.

The federal state will take a temporary 9.3 percent stake in UBS. The second-biggest bank Credit Suisse, said it did not need state help but has turned to a group of investors for 10 billion francs ($8.79 billion) in new capital. The biggest participant is a Qatari sovereign wealth fund.

Banking is a driving force of the Swiss economy and UBS, which has announced staggering figures for the damage done by its exposure to the U.S. home-loan market.

"Confidence is the foundation for re-establishing the stability of the international financial markets and thus also of the Swiss financial market," the government said in a statement.

Eight European mutual banks struck a deal to lend to each other to help boost confidence in the financial sector, Credit Agricole of France announced.

The eight banks account for a fifth of Europe's retail banking sector.

But Japanese Prime Minister Taro Aso said stocks are falling because investors believe the $700 billion U.S. banking rescue plan does not go far enough.

"I think market players are selling because they feel the capital injections are still insufficient. Despite some positive reaction, the market is calling for more because it was not enough," the outspoken conservative said in parliament.

He said a bottom to the Tokyo stock market was not yet in sight after the Nikkei stock index plunge. Taking their lead from Wall Street's worst ever points fall, Seoul lost 9.4 percent, Sydney 6.7 percent and Hong Kong lost almost five percent lower.

In morning trading in Europe, London was down 3.0 percent, Frankfurt shed 4.06 percent and Paris lost 3.25 percent.

A global recession was the markets' biggest fear, said CMC Markets head of trading James Foulsham in Australia, describing the day as "another shocker."

The Dow sank 7.87 percent on Wednesday after US retail sales fell further than expected and Federal Reserve chairman Ben Bernanke said a recovery from the financial crisis would not happen right away.