(Corrects amount of safety net in 3rd para to 500-billion-euros ($617.2 billion))

BRUSSELS - European Union leaders hope to agree on ways to strengthen budget discipline and economic policy coordination on Thursday to show financial markets they can prevent a repeat of the euro zone debt crisis.

Leaders of the 27 member states and the executive European Commission will also work on tightening financial regulation to help prevent another global economic crisis, including a levy to ensure banks pay for any future crises.

The leaders have agreed on a 500-billion-euro ($617.2- billion) safety net to help struggling countries that use the euro and a 110-billion-euro aid mechanism for Greece.

But despite repeated denials, they have not allayed concern that Spain will follow Greece by seeking financial help.

The turmoil in the sovereign debt markets has cast a serious shadow over financial stability in Europe, which could ... derail the still nascent recovery of the real economy, EU Monetary Affairs Commission Olli Rehn warned on Wednesday.

A show of unity is likely at the one day-summit, which will review the findings of a task force set up to look at reforms designed to prevent debt building up, increase cooperation and set up a permanent aid mechanism for countries in debt trouble.

Failure to show solidarity could increase the market nervousness that has helped drive down the euro and shares.

The leaders broadly agree on the need for closer economic policy coordination, or economic government, and on the need for tighter financial regulation, but do not all see eye to eye on how to go about it.

German Chancellor Angela Merkel and French President Nicolas Sarkozy set the tone on Monday by pledging unity to defend the euro from its worst crisis since it was founded 11 years ago.

Sarkozy bowed to German demands for tougher budget rules and accepted euro zone states which persistently breach deficit limits should have their voting rights in the bloc suspended, even if it requires treaty changes.

He also accepted closer economic government, or greater economic policy coordination, should involve all 27 EU member states and not just the 16 that use the euro, and dropped demands for dedicated euro zone secretariat.

More than ever, Germany and France are determined to talk with one voice, to adopt common policies, to give Europe the means to met its legitimate ambitions, Sarkozy said.

MOUNTAIN TO CLIMB

But EU diplomats say differences remain and there is a long way to go to convince the markets and get through the crisis.

Britain, for example, is hostile to important parts of the drive toward closer budget surveillance and says it will not allow its budget plans to be submitted to the Commission for review before the national parliament.

British Prime Minister David Cameron is likely to defend his position strongly at his first EU summit.

Swedish Prime Minster Fredrik Reinfeldt ruled out any changes of the EU treaty to strengthen budget discipline on Wednesday, opposing calls for amendments led by Germany to step up sanctions on budget sinners.

My mood is still bleak. We are not over the hill on this, we are still climbing up it, a senior EU envoy said.

A decision by Moody's rating agency to cut Greece's debt to non-investment grade on Monday served notice of the need for the EU to remain alert over the debt crisis.

Spain, which has a closely watched bond auction on Thursday, also is a cause for concern although member states say it is not on the agenda of the summit and have denied repeatedly that Madrid is seeking financial help.

Madrid won plaudits from Merkel on Wednesday for announcing labor reforms to try to boost its competitiveness. But financial analysts questioned whether its plans, or pension reforms announced by France the same day, go far enough.

The leaders are expected to press ahead with moves toward Europe's own banking levy after the world's top economies failed to agree on such a tax for an industry widely seen as one of the main culprits behind the global economic meltdown.

They aim to agree a joint position for the G20 summit in Toronto on June 26-27.

Pressure also is mounting for European regulators to publish results of stress tests on individual banks to restore market confidence and overcome a partial freeze in inter-bank lending. Such tests show banks' ability to withstand liquidity problems.

Finland's finance minister said on Wednesday that support for more transparent bank stress tests was growing in Europe, but it was not clear whether such moves would be on the agenda.

(Editing by Michael Roddy)

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