World leaders grappling with a financial crisis have vowed to work together to prevent future meltdowns as they gathered for a Washington summit amid signs of division over how far to go with market reforms.

With host President George Bush in his final two months in office and president-elect Barack Obama not participating, hopes for hard conclusions were low but the intent was to kick off a series of meetings to try to prop up sagging economies.

"We need to agree on the importance of coordination of monetary and fiscal policy,'' British Prime Minister Gordon Brown said before the summit, which began as Bush greeted leaders one by one as they arrived for a White House dinner.

Finance ministers from the world's leading economies were dining separately at the US Treasury with moves to boost their economies high on the agenda.

Leaders and ministers will join for five hours of talks on Saturday, followed by release of a final communique.

Ahead of the meetings, European leaders said the deep global financial crisis - the worst since the Great Depression of the 1930s - demonstrated the need for a stricter set of market rules.

The 15-nation European Union is now officially in recession and the US is headed that way.

The US and Canada, however, urged moderate reforms and ruled out establishing any regulatory authority with power to set rules across borders.

Bush defends status quo

Mr Bush, countering criticism that free-wheeling, US-style capitalism is to blame for the crisis, has called on leaders to work to fix the free-enterprise system, not dismantle it.

Despite underlying tensions over the summit's objectives, Bush was all smiles as he welcomed arriving world leaders. UN Secretary-General Ban Ki-moon, Italian Prime Minsiter Silvio Berlusconi and Japanese Prime Minister Taro Aso were among the first to pull up in limousines.

"I don't think the major economies of the world will ... consent to have external control over their regulatory systems,'' Canadian Prime Minister Stephen Harper said in Winnipeg. "Compulsory global governance ... is unrealistic (and) will never be accepted.''

Japan similarly said it wouldn't back a global regulatory effort. "We think the fundamental principle should be that capital flows based on the free market should continue to serve as the foundation of the global system,'' Japanese Foreign Ministry spokesman Kazuo Kodama said.

Still, German Chancellor Angela Merkel told a news conference in Berlin before heading to the US capital that policy-makers need to establish some type of framework to ward off the risk of future crises.

"The government will do everything to ensure there are more rules to prevent such a situation recurring,'' she pledged, referring to the credit market turmoil touched off by the falling value of US mortgage-related debt.

Expectations for the summit were low given the participants' sometimes differing agendas as well as Mr Bush's lame-duck status, which raises questions whether he will be able to follow through on his reform commitments.

Mr Obama, who takes office on January 20, opted to stay away and instead send representatives, including former US Secretary of State Madeleine Albright, to meet leaders on the sidelines.

US Treasury Secretary Henry Paulson said the US had "in many ways humiliated ourselves as a nation with some of the problems that have taken place here''.

Emerging markets

Fresh US and European data underlined the severity of the downturn policy-makers face.

The euro zone tumbled into recession in the third quarter and US retail sales posted a record slump last month. Japan and Britain are also on the brink of recession, while China's growth has slowed to destabilising levels.

US stock prices fell sharply again on Friday as investors worried that the economic picture was darkening.

Brazilian Finance Minister Guido Mantega, after a meeting in Washington with prime ministers and finance chiefs from Britain, Japan and Australia, said both regulatory reform and concerted government spending was needed quickly.

"Rekindling confidence requires clear rules, more transparency,'' Mr Mantega said.

"If we don't take quick action we run the risk of falling into a depression.''

The summit unites leaders from 19 nations and the European Union under the umbrella of the Group of 20. It includes emerging markets such as China, Brazil, India and South Africa and older industrial powers from the Group of Seven nations in what could be the power constellation of the future.

Before the meeting, Mr Bush pitched for modest reforms to preserve free markets, rather than the stiffer regulation some European nations favor to curb the excesses of capitalism.

The summit was billed as a chance to shift more policy-making power to emerging-market nations. But that may await negotiation, since it would require some rich countries to yield power, which is unlikely to come easily.

However, there have been calls for countries like China and Saudi Arabia that are flush with foreign exchange reserves to play a larger role in throwing a safety net to other emerging nations by more fully funding institutions like the IMF.

Japan's Mr Aso on Thursday offered to lend up to $US100 billion to the IMF, but it remains to be seen whether others follow.

Reuters