LONDON - World leaders will impose new financial rules on Thursday and triple the war chest of the International Monetary Fund to fight the worst economic crisis since the 1930s, sources at the G20 summit said.
Host Britain conceded there were still gaps to close. France and Germany are demanding concrete measures -- not just promises -- to clamp down on tax havens and regulate hedge funds and markets.
The text that has already circulated reflects the very high level of consensus that exists, British Prime Minister Gordon Brown said. Obviously people have changes they wish to make to the text and if they give them to me I am prepared to look at them.
The communique drafted for the meeting, obtained by Reuters, said leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up IMF. [ID:nL2438948]
Summit sources said the latest draft summit communique provided for a $500 billion boost to the IMF's resources, raising to $750 billion the funds it can make available to countries worst hit by the global crisis.
The IMF would also be able to borrow money on international markets if needed, the sources said. A British government minister said leaders would discuss possible sales of IMF gold reserves, which could raise yet more cash.
Group of 20 leaders are close to agreeing a trade finance package worth $250 billion to support global trade flows, a source at the summit in London told Reuters.
Brown had been targeting at least $100 billion to help reverse the decline in trade following the credit crunch.
The draft included a pledge to deliver the scale of sustained effort necessary to restore growth without making any commitments beyond the trillions being spent to stabilise banks, shore up demand and limit job losses.
The world economy will shrink this year for the first time since World War Two and tens of millions of people are expected to lose their jobs.
World stock prices, battered by the crisis for months, have recovered some lost ground in the last month and shot higher on Thursday on hopes for a strong agreement by the G20 leaders. The index of top European shares jumped 3.9 percent <.FTEU3> after Japan's Nikkei gained 4.4 percent.
A good rally is coming through, particularly from Asian markets overnight on hopes for a decent stimulus package from the G20 to lift confidence, especially with regards to emerging economies and a boost to the International Monetary Fund, said Henk Potts, strategist at Barclays Wealth.
Those gains will vanish if the summit does not deliver.
Keen to secure a confidence-boosting message as the world succumbs to recession, U.S. President Barack Obama said there were no substantive differences with Europe, despite a hardball stance taken by France and Germany over new financial rules.
Washington wanted tougher regulation too, Obama said on Wednesday. The gathering brings together the world's biggest economies, developed and up-and-coming, in all accounting for more than 80 percent of world trade and economic output.
It was not clear whether the flashpoint, which appeared to focus primarily on France's demands for blacklisting of tax havens, would be enough to derail a message of unity.
The most important issue is that we agree ... on the principle that no financial market product, no financial market participant and no financial market can remain without regulation and without supervision, German Finance Minister Peer Steinbrueck told Deutschlandfunk radio.
SUMMIT HOPES BOOST STOCKS
The global economy is expected to shrink more in 2009 than any year since World War Two, dropping between 0.5 and 1.0 percent, according to the IMF, whose head, Dominique Strauss-Kahn, is calling it a Great Recession.
They are not yet moving quickly enough in doing the cleaning up of the financial system, the Financial Times quoted Strauss-Kahn as saying.
The draft communique contained a pledge by the G20 nations to allow candid, even-handed and independent surveillance of their economies and financial sectors by the IMF, which will take an increasingly central role in global oversight.
It also unveiled a new Financial Stability Board to work with the IMF to identify economic and financial risks and measures needed to address them, revamping an existing body called the Financial Stability Forum.