Rich nations rush to shore up global financial system as IMF warns of meltdown

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WASHINGTON/CANBERRA, Oct 12 (Reuters): Rich nations rushed to shore up the global financial system after the International Monetary Fund (IMF) warned of meltdown, with Australia and New Zealand guaranteeing bank deposits and newspapers reporting plans for Britain's biggest retail bank rescue.
The IMF said it backed a Group of Seven (G7) plan to try to stabilise markets and urged "exceptional vigilance, coordination and readiness to take bold action" to contain a firestorm that pushed global stocks to five-year lows.
Under the Australian plan, all deposits in the country's banks, building societies and credit unions, would be guaranteed by the Australian government for the next three years, Australian Prime Minister Kevin Rudd told reporters.
The government would also guarantee term wholesale funding to local banks until global financial markets stabilised.
In the UK, the Sunday Times newspaper said Britain will launch its biggest retail bank rescue Monday when the four largest, HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays, ask for a combined 35 billion pound ($60.5 billion) lifeline.
France promised that a meeting of European leaders in Paris Sunday will detail measures to keep a market panic from triggering the most severe global downturn in decades.
French President Nicolas Sarkozy and German Chancellor Angela Merkel, meeting in France, said they had "prepared a certain number of decisions" to present at the European summit to try to restore normal flows in blocked credit markets.
France's Economy Minister, Christine Lagarde, said just before leaving Washington that the Sunday gathering would go beyond talking about remedies to "put meat, muscles on the bones of that skeleton and to develop, follow up and execute upon it."
The United States appealed for patience but the IMF said time was short after the G7 industrialised nations failed to agree on concrete measures to end the crisis at a meeting Friday.
"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said.
Strauss-Kahn later expressed hope government actions will prove powerful enough to persuade banks to resume lending and bring an end to a spreading credit crunch.
President George W Bush met with G7 economic chiefs and officials from the IMF and World Bank and said top industrial nations would work together to solve the crisis.
"I'm confident that the world's major economies can overcome the challenges we face," Bush said, adding that Washington was working as fast as possible to implement a 700-billion-dollar financial bailout package approved a week ago.
Last week, the Standard & Poor's 500 index tumbled more than 18 per cent-its worst week on record-while European stocks plunged 22 per cent and Tokyo's Nikkei crashed 24 per cent on the week.
Japanese markets are closed for holidays Monday, as is the US Treasury bond market.
Last week's coordinated interest-rate cuts from global central banks failed to sooth investors' nerves and credit markets remained logjammed.