The International Monetary Fund is worried that contagion from the euro zone debt crisis could hit eastern Europe hard, and the region should take strong action to shield itself, a senior Fund official said on Friday.

The number one priority would be to see these countries more resilient, more robust, the head of the IMF's European department, Antonio Borges, told a news briefing in Moscow.

Emerging economies like Russia have suffered accelerating capital flight and steep losses on financial markets since the global economic outlook soured in August and Europe's sovereign debt crisis took a turn for the worse.

Some capital flight has been attributed to a withdrawal of funds from the eastern European subsidiaries of western banks as they seek to manage their exposure to the sovereign debt of Greece, which is at risk of default.

We're especially focussed on financial spillovers because if there are further problems in the financial sector in western Europe that will certainly have repercussions in emerging Europe, said Borges.

Russia does not borrow from the IMF. It received an IMF loan before defaulting on its domestic debts in 1998 and has gone on to reduce its sovereign debt to 10 percent of gross domestic product and accumulate over $500 billion (322 billion pounds) in reserves.

Borges made waves in Brussels this week when he said the IMF might buy Spanish and Italian sovereign bonds as part of crisis management efforts. He later clarified his remarks, saying the IMF could lend to governments but could not buy their bonds in the market.

The IMF is not in a position to buy on the bond market. We will however do our best to restore confidence in the banks in Spain and Italy, Borges told reporters.

He said the European Financial Stability Fund (EFSF), a bailout fund set up by the euro zone member states, could boost confidence if properly deployed.

The EFSF can have a very big impact, Borges said, adding: The IMF will do everything in its power to achieve this as well, but the possibility of intervening on the market today is not in our mandate.

The EFSF is now being increased -- we think this is very appropriate and we don't think that there is much scope for a further increase, especially in the short term. The question is how these resources can be used effectively.

Euro zone leaders agreed in July to increase the EFSF's effective lending capacity to its full volume of 440 billion euros (380 billion pounds). Parliaments of most countries in the currency union have approved the move.

Borges said no talks were under way with Russia or any other country outside the euro zone to contribute directly to the EFSF, but Russia and others would be welcome to invest in bonds issued by the EFSF.

Former Finance Minister Alexei Kudrin told Reuters last month that Russia would be interested in buying EFSF bonds.

ECB SHOULD EASE

The IMF sees room for the European Central Bank to lower interest rates and considers inflation expectations in the euro zone to be well anchored, Borges told the news conference.

We would hope, and this is the market expectation, that interest rates would come down, basically because there is little fear of inflation, Borges said after the ECB held interest rates on Thursday and launched fresh liquidity measures to aid banks.

Given the risks with respect to growth we think that lower interest rates may be appropriate.

He also said that the Fund was happy with the announcement by the Bank of England on Thursday that it will launch a new round of quantitative easing to shield Britain's economy from the effects of the euro zone debt crisis.

Borges described the announcement of 75 billion pounds in government bond purchases as appropriate but added that he did not think further action was necessary.