The leaders of Germany, France and Spain will hold crisis talks about Europe's spiraling debt crisis on Friday after China and Japan called for global policy cooperation following a market rout.

The European Central Bank offered only limited help and told Italy and Spain -- now at the eye of the storm -- to take tougher austerity measures before it will step in to buy their bonds.

The comments from China and Japan, Washington's two biggest foreign creditors, highlighted fear that Europe's debt crisis could spin out of control and the U.S. economy may go into reverse.

European markets hit a 14-month low in early trading, following sharp falls in Asia and on Wall Street.

French President Nicolas Sarkozy was to discuss the situation on euro zone financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero in separate telephone calls on Friday, his office said.

Non-euro member Britain said it was in touch with euro zone leaders and the Group of Seven leading industrial powers on the market turmoil.

Recent developments mainly reflect an increasing skepticism about the systemic capacity of the euro area to respond to the ongoing crisis, Greek Prime Minister George Papandreou wrote in a letter to European Commission President Jose Manuel Barroso, echoing an assessment from Barroso himself earlier this week.

The ECB reactivated its dormant bond-buying program on Thursday in an attempt to hose down the euro zone's deepening sovereign debt crisis, but only bought Portuguese and Irish debt. Influential members of the ECB opposed even that.

Central bank sources told Reuters that four out of 23 ECB governing council members, including powerful German Bundesbank chief Jens Weidmann, voted against the decision to resume any bond purchases.

That widened a damaging rift that first appeared last year when Weidmann's predecessor, Axel Weber, publicly dissociated himself from the policy. This time, ECB chief economist Juergen Stark and the Dutch and Luxembourg central bankers also dissented, the sources said.

Governing council member Luc Coene of Belgium said the policy-setting body had not vetoed buying Italian and Spanish bonds but both countries would have to take further action to earn central bank support.

I certainly think the central bank is ready to take significant measures to help the situation, the Belgian central bank governor said in a radio interview. But first countries need to take measures.

The Bank of Spain also said that to overcome the debt crisis, there must also be a vigorous response in national economic policy.

Markets were unimpressed with modest ECB purchases of Portuguese and Irish bonds and piled more pressure on Rome and Madrid. Traders said the central bank intervened for a second day on Friday, but was again only buying Portuguese and Irish paper.

Spanish and Italian 10-year bond yields hit fresh euro lifetime highs on Friday, with Italian yields overtaking Spain's for the first time since 2010, as a worldwide selloff of risk assets accelerated.

Investors said policy differences among European Union governments and central bankers were heightening anxiety about Europe's systemic capacity to stem the debt crisis.

In Europe, central banks and governments are not marching in step, said Georg Schuh, chief investment officer of Deutsche Bank's asset management arm DB Advisors, adding that the next four to six weeks would be crucial.

More than $2.5 trillion have been wiped off the value of world stocks this week.


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.

Japan sold yen on Thursday to try to cap the currency's rise. It has become a popular safe-haven bet, as has the Swiss franc, as concerns about the United States and Europe grow.

China Foreign Minister Yang Jiechi said U.S. debt risks were escalating and countries should step up cooperation on global economic risks.

Yang, who is visiting Poland, called on the United States to adopt responsible monetary policies and protect the dollar investments of other nations.

The U.S. Federal Reserve holds its next policy-setting meeting on Tuesday, and economists say there is little more it can do to try to spur growth.

IHS Global Insight said there was now a 40 percent chance the United States could slip into recession.

Meanwhile, investors are worried that Italy and Spain, the euro area's third and fourth biggest economies, could be next to require bailouts after Greece, Ireland and Portugal, overwhelming Europe's financial fire-fighting capacity.

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. Currently at 440 billion euros, it would need to be doubled or tripled to cover economies as big as Italy and Spain.

European Economic and Monetary Affairs Commissioner Olli Rehn, who broke off his vacation and returned to Brussels, said the EU should keep adapting its financial rescue fund to make it credible and, in the longer term, consider common euro zone bonds.

To be effective, the EFSF needs to be credible and respected by the markets. And therefore we need to be continuously assessing it, once up and running in its objective form, with these goals in mind, Rehn told BBC radio.

Voicing a personal view not shared by all his ECB colleagues, Coene also said Europe should move in the direction of common European bonds.

It's the direction in which we need to go. You need to bring all of these problems of sovereign debt to the European level. We will never get out of it if we leave that at the national level, he said.

EU heavyweights Germany and France have so far opposed any common debt issuance, arguing that it would remove a key driver of fiscal discipline in individual member states and push up their own borrowing costs as AAA-rated sovereigns.

In the United States, a similar sense of paralysis has taken hold.

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.

U.S. employment numbers due out 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.

(Additional reporting by Kathrin Jones and Sakari Suoninen in Frankfurt, Leika Kihara in Tokyo, William James and Ana Nicolai da Costa in London, Pedro da Costa, Kristina Cooke, Walter Brandimarte in New York and Emily Kaiser in Singapore; writing by Paul Taylor; editing by Mike Peacock)