Leaders from European powerhouses Germany and France will hold talks on Friday after a global market rout signaled fear Europe's debt crisis is spinning out of control and a U.S. recovery is stalling.

French President Nicolas Sarkozy will discuss financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero, Sarkozy's office said in a statement.

In Japan, Finance Minister Yoshihiko Noda said global policymakers needed to confront currency distortions, the debt crises and concerns about the U.S. economy.

I agree that these subjects should be discussed, he told reporters a day after Japan intervened to sell yen. Each problem is important, but how to prioritize these issues is something to discuss from here on in.

Concerns that the U.S. economy is sliding into recession after a flurry of weak data and Europe's sovereign debt problems are deepening sparked panic selling, triggering the worst sell-off on Wall Street since the global financial crisis.

The selloff extended into Asia on Friday where markets skidded as much as 5 percent and with investment options running out, funds are flooding into cash.

Japan and Switzerland are trying to reduce the allure of their markets as safe havens and after gold has more than doubled in price since the global financial crisis, many investors are having second thoughts about seeking refuge in the precious metal.

Bank of New York Mellon Corp said it had been overwhelmed with deposits, so is charging some big customers a fee.

Investors slashed positions after the European Central Bank failed to include Italy and Spain in a fresh round of bond buying, even though yields on their debt shot above 6 percent, the highest level since the euro was launched over a decade ago.

ECB President Jean-Claude Trichet said there was not full support in the central bank for the action, underscoring deep divisions within Europe over how to handle a debt crisis that has forced Greece, Ireland and Portugal to seek financial rescues.

Investors worry that Italy and Spain, the euro area's third- and fourth-biggest economies, could be next.

Sarkozy said France, Germany and Spain had talked to Trichet. U.S. officials from the Federal Reserve, the U.S. Treasury and the White House declined to comment on whether they were holding any discussions with European or Asian officials.

Investors had hoped the ECB would target Spanish and Italian debt in reviving its bond-buying stimulus program, but it restricted the purchases to Irish and Portuguese securities.

Roberto Perli, managing director at ISI Group and a former staffer at the Federal Reserve, called the ECB's action mysterious.

It sent the wrong message, he said.

Belying a sense of crisis, many of Europe's policymakers are still on their summer vacations, although EU Economic and Monetary Affairs Commissioner Olli Rehn broke away from his holiday to return to Brussels. He plans a news conference on Friday.

Italian Economy Minister Giulio Tremonti voiced frustration at the ECB's response. When he talked to Asian investors, they had told him: If your central bank doesn't buy your bonds, why should we buy them.

Analysts said the ECB needed to start buying Italian and Spanish bonds to prevent the debt crises from spreading and so quell investor anxiety.

Longer term, some sort of supranational fiscal authority was needed, thereby transferring some of the debt burden of troubled countries to the region as a whole. For now, such an option is not seen as politically palatable to Germany and France.

Analysts said they would look to see if European leaders are willing to expand its emergency financial stability fund to an amount that would put a floor under the market panic.

They say the fund, currently 440 billion euros, would need to be doubled or tripled to cover economies as big as Italy and Spain.

U.S. PROBLEMS COMPOUND UNCERTAINTY

In the United States, a similar sense of political paralysis reins. Just days after a bitterly fought, last-minute deal to raise the country's debt ceiling and avoid default, realization has sunk in that many elements of the $2.1 trillion deficit reduction plan are short term and not locked in place.

Doubt has spread through markets that Congress will stick to implementing it in full after the November 2012 elections.

This, combined with a bout of poor economic data, points to a heightened risk of another slump. Lawrence Summers, a senior adviser to the U.S. president until last year, argued in a Reuters column that there is a one in three chance of recession in the United States.

U.S. employment numbers due later on Friday will be critical to market sentiment. Forecasts are for a tepid 85,000 jobs added in July, but a weak number or even contraction would boost concern that the United States is heading into recession.

Many economists say chances are slim that Congress would endorse a further round of fiscal stimulus now that it is focusing on fiscal spending cuts.

I don't see a well functioning government that can do something, said Jeff Frankel, economics professor at Harvard University and former White House economic advisor under Bill Clinton. If everything is blocked politically, especially fiscal policy, there's nothing much you can do.

Options for the Fed, which meets to set policy on Tuesday, are also severely restricted. Policymakers appear reluctant to embark on another round of bond purchases, particularly given how controversial the last program proved to be.

Still, Fed Chairman Ben Bernanke has noted other options, such as bolstering its assurance that rates will stay low for an extended period.

Nonetheless, few expect such efforts to have much of an impact, particularly since the economy's chief problem at the moment appears to be a lack of jobs, not credit.

The Fed has mentioned what their menu of tools is for easing, the problem there is several of them really have no significant macro economic benefit, said Michael Gapen, senior economist at Barclays Capital.

(Additional reporting by Kristina Cooke and Walter Brandimarte; Editing by Stella Dawson and Neil Fullick)