BRUSSELS - European Union leaders will approve new rules to tighten bank supervision at a two-day summit which starts on Thursday and is intended to show the bloc has the economic crisis under control.

The leaders will support conservative Jose Manuel Barroso's bid for a second five-year term as president of the European Commission, providing some continuity in difficult times.

They are also due to agree legal guarantees to help persuade Irish voters to back the Lisbon treaty reforming decision making in the EU after its expansion to 27 member states.

The summit follows an election to the European Parliament that drew a record-low turnout, attributed partly to disenchantment with the Union's patchy response to a crisis that has cost jobs and caused street protests across the region.

I believe that in times of crisis we need more than ever a strong European Union and a strong European Commission, Barroso wrote to EU leaders, who on Thursday evening will interview him over dinner for the term he is seeking.

This is, more than ever, the moment for action. The world will not wait for Europe, wrote Barroso in a job application letter setting out his main goals if re-appointed.

The EU has begun stimulus measures which it says will cost up to 4 percent of its total output, and now wants to tighten a financial supervisory system that failed to shelter Europe from a crisis that stemmed from bad U.S. home loans.

The leaders agree on the need for tougher rules but London is concerned that the blueprint under discussion could encroach on its national regulator's power to steer the financial services sector, which is crucial to Britain's economy.

But with U.S. President Barack Obama unveiling on Wednesday what he called the most sweeping reform of U.S. financial supervision since the 1930s, Britain's EU partners are confident London will have little choice but to sign up.

PINCER MOVEMENT

They cannot be quite isolated within Europe and at the same time refuse to accept for the City of London the kind of rules being imposed on Wall Street itself, said an aide to French President Nicolas Sarkozy. There will be a pincer movement on Britain.

The EU proposals involve creating three pan-European watchdogs next year to ensure countries introduce new rules on supervision, and a new European Systemic Risk Board that would monitor the build-up of risks to stability.

Diplomats said a second meeting would probably be needed this year to address the more difficult issues before the European Commission sets out its legislative proposals.

The EU leaders will also try to help the bloc emerge from the institutional limbo it fell into four years ago when French and Dutch voters rejected a European constitution designed to give the bloc a greater voice in world affairs.

The Irish government expects to receive legal guarantees to help overcome the doubts which prompted Irish voters last year to reject the Lisbon treaty that succeeded the constitution and must be ratified by all EU states to take effect.

They include assurances its policies on military neutrality, abortion and taxation will not be affected by the treaty. Dublin is expected to hold a new referendum by early October.

Diplomats said there was broad agreement on the guarantees and they should be legally binding but Britain was resisting Irish demands that they have the status of a treaty protocol, saying this would require ratification by all member states.

Barroso, 53, is the only declared candidate to head the EU's executive. He is expected to win the EU leaders' political support and then seek the approval of the European Parliament.

The summit will also discuss EU plans to combat climate change, illegal immigration on its Mediterranean coastline, and the prospect of a new gas dispute between Russia and Ukraine.

(Reporting by Mark John; editing by Philippa Fletcher)

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