President Barack Obama called on Wednesday for a sweeping overhaul of Wall Street regulations, saying big changes were needed to avoid a repeat of the financial meltdown.

Obama convened a high-level White House meeting on the issue that included Democratic and Republican lawmakers who said they would work with the administration to craft legislation in the next few weeks. Obama, a Democrat, said painful experience showed the rules needed to be modernized.

The economy cannot sustain 21st century markets with 20th century regulations, Obama told reporters after the meeting with lawmakers.

If we once again guide the market's invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last, he said.

Obama's comments rattled investors. U.S. stocks fell after a day of choppy trading.

Obama, who took office on January 20, weighed in on oversight of the ailing financial sector the day after his first address to Congress, in which he sought to rally public support for his economic remedies.

Obama and other leaders of the Group of 20 nations will meet in London in April to discuss ways to improve the global financial system. Obama wants to signal that the United States has no intention of dragging its feet on the effort.

The G20 -- comprised of the United States and major European economies as well as fast-growing economies like China -- is looking at how to reshape the financial regulatory system that was largely shaped toward the end of World War Two at the 1944 Bretton Woods conference.

Turmoil throughout the banking and financial system caused by the subprime mortgage crisis is at the core of the recession that has spread worldwide.

There is wide agreement among financial market experts -- both in the United States and around the world -- that the rules governing financial institutions are in dire need of modernization.

Some experts believe that moving ahead quickly on the regulatory overhaul will help repair the shattered financial system by restoring trust. But others say tackling that while the markets are still in crisis might complicate matters.

Strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors and ultimately to keep those financial institutions strong, Obama said.

AIMING FOR APRIL

New York Senator Charles Schumer, a member of the Democratic leadership, said the Treasury Department is working with lawmakers to overhaul financial regulations.

The aim is to have a framework for such legislation by April 2 when Obama goes to the G20.

Schumer said the United States wants G20 leaders to know what the United States is planning, at least in general terms, to avert possible conflicts with efforts overseas.

In the financial world, if we were to legislate and Europe would do something totally different, it might undercut everything we do, Schumer told reporters on Capitol Hill.

Our intention is to try to get this done in the coming weeks and months, Senator Christopher Dodd, chairman of the Senate Banking Committee, told reporters after the White House meeting.

The European Union is also stepping up the pace of financial regulation reform.

The executive European Commission published guidelines on Wednesday for an EU-wide approach to dealing with toxic assets at banks and a report to be debated by EU leaders called for two bodies to coordinate oversight of financial institutions across Europe.

Obama said the need for regulatory reform was a global one.

We must recognize that the challenges we face are not just American challenges, they are global challenges, he said.

Well before the mid-September collapse of Lehman Brothers led to a meltdown in the financial markets, Obama had urged a wide-ranging overhaul of the patchwork system of Wall Street regulatory agencies. He said the weak and outdated system would leave Wall Street vulnerable in a crisis.

Obama gave a speech on the subject at NASDAQ in September 2007, and in another speech in March 2008, he outlined principles of his vision for updating the financial rules.

(Additional reporting by Thomas Ferraro and Matt Spetalnick; editing by Patricia Zengerle)

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