The incoming head of the European Central Bank threw the Eurozone a lifeline hours before a crucial summit on Wednesday by signaling the bank would go on buying troubled states' bonds to combat market turmoil.

Mario Draghi delivered the message that financial markets have been waiting for about the ECB's intentions as leaders of the 17-nation single currency area struggled to produce a comprehensive plan to resolve the bloc's sovereign debt woes.

The Eurosystem (of central banks) is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission, he said in typically coded ECB language in a speech text released in Rome.

Draghi, who will succeed Jean-Claude Trichet on Nov. 1, made clear that measures could only be a temporary expedient and said it was up to governments to tackle the roots of the debt crisis that began in Greece two years ago.

However, his statement appeared to rebuff pressure from Germany's powerful Bundesbank for the ECB to end the bond-buying program which prompted the resignation of the two most senior German ECB policymakers this year.

Prospects for a detailed masterplan to resolve the debt crisis at Wednesday evening's Eurozone summit looked dim, with disagreements remaining on some critical aspects, including how to give region's bailout fund extra firepower.

EU officials and European diplomats lowered expectations of a breakthrough when leaders meet from 1730 GMT, despite Franco-German assurances that a comprehensive solution to two years of debt turmoil would be found.

The leaders may agree only on broad outlines and leave crucial details, including the numbers on a Greek debt write-down and on funds available for financial fire-fighting, for later negotiation among finance ministers.

A European Commission spokesman said there would not be detailed numbers on all aspects of the political agreement.

While there is consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to withstand a potential Greek debt default and wider financial contagion, there is little clarity on either of the other two critical parts of the plan.

Governments and banks were still arguing hours before the summit over the scale of the writedown private bondholders will have to take on their Greek debt holdings, sources familiar with the negotiations said.

And many uncertainties remain around complex plans to scale up the region's 440 billion euro ($600 billion) bailout fund, known as the European Financial Stability Facility, without allowing it to draw on the European Central Bank.

Investors stayed cautious ahead of the summit outcome, with the euro holding steady against the dollar and European shares little changed.

50 PERCENT HAIRCUT?

One proposal set to be adopted involves creating a special purpose investment vehicle (SPIV) to tap foreign sovereign and private investors, such as Chinese and Middle Eastern wealth funds, to buy bonds of troubled Eurozone countries.

The EFSF said its chief, Klaus Regling, would visit China to meet with investors on Friday.

Chinese and European officials said there was no word yet on whether Beijing, which holds AAA-rated EFSF bonds and an estimated 600 billion euros in euro-denominated debt, would also invest in the SPIV.

The other proposed method for scaling up the EFSF involves using it to offer partial guarantees to purchasers of new Eurozone debt. The two options may be used in combination.

German Chancellor Angela Merkel told parliament that private bondholders would have to take a substantial write-down so that Greece's debt could be reduced to 120 percent of gross domestic product by 2020 from 160 percent this year.

Greek Finance Minister Evangelos Venizelos was reported to have told Greek banks the most likely outcome of negotiations was a 50 percent haircut for private investors, who would receive cash and new bonds in return for the debt.

Citing sources in Brussels, where he has been meeting bankers, the daily Kathimerini said banks would receive 15 euros in cash and 35 euros in 30-year bonds with a 6 percent coupon for every 100 euros of debt they own.

Banking sources and EU officials told Reuters the banks were now willing to accept a 50 percent reduction in the net present value of their holdings, while governments had sought a 60 percent voluntary write-down on the notional value.

Jean-Claude Juncker, the chairman of euro zone finance ministers, forecast an eventual deal on a 50 percent write-off, but officials said it might not come in time for Wednesday's summit.

European leaders' pattern of responding too little, too late to the debt and banking woes has turned it into a wider economic and political crisis that threatens to undermine the euro single currency and the European Union project.

Financial markets have been hoping for weeks that the summit, scheduled to start at 1600 GMT with a gathering of all 27 EU leaders, will yield a detailed overall solution on how to combat the debt crisis.

But EU sources said figures may not materialize until Nov. 7-8, when EU and eurozone finance ministers hold their next regular meeting.

Further complicating Wednesday's talks, which will be preceded by a meeting of senior finance officials and central bankers to try to hammer out a meaningful agreement, was intense market pressure on Italy.

LETTER OF INTENT

Italy's inability to deliver a substantive plan for reforming its pensions system has raised doubts about Prime Minister Silvio Berlusconi's seriousness in tackling a crisis that threatens the euro zone's third largest economy.

Berlusconi will bring to Brussels a letter of intent to his European partners on long awaited reforms, aides said, after his government nearly collapsed on Tuesday over their demands that Rome fulfill a pledge to raise the retirement age.

Italy has the Eurozone's largest sovereign bond market, with a public debt of 1.8 trillion euros, 120 percent of GDP. EU leaders fear that failure to make its debts more sustainable will mean it goes the same way as Greece, Ireland and Portugal, which have had to accept EU/IMF financial aid programs.

The rescue fund doesn't have enough money to bail Rome out.

Draghi's statement appeared to supersede a dispute between Germany and France over how the ECB, the ultimate defender of the euro, should be involved in trying to resolve the crisis.

Paris had wanted the summit to endorse a continuation of the ECB's non-standard measures as long as Europe faces exceptional circumstances.

Merkel, fighting to secure parliamentary backing for the scaling up of the EFSF, said Germany opposed a line in the draft summit conclusions urging the ECB to continue these measures -- a key backstop against deeper turmoil.

A senior Eurozone source said the phrase would be dropped.

(Additional reporting by Michael Martina in Beijing, Annika Breidthardt and Sarah Marsh in Berlin, Daniel Flynn and Harry Papachristou in Athens, Phil Pullella in Rome; Writing by Luke Baker and Paul Taylor; editing by Janet McBride)