Europe is working to ramp up the firepower of its bailout fund, top officials said on Saturday, as the United States, China and other nations raised the alarm about its debt crisis hurting the world economy.

Financial markets plunged last week on fears that Greece's near-bankruptcy could spread to other euro zone countries, heaping pressure on European policymakers to prevent a repeat of the chaos that swept the world in 2007-2009.

The European Union's top economic official, Olli Rehn, said as soon as the region's governments confirm new powers for their 440-billion-euro fund, known as the EFSF, attention will turn to how to get more impact from the existing money.

We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet, another senior European official said on condition of anonymity.

The rescue fund would need to be at least 2 trillion euros to safeguard Italy and Spain if the crisis were to spread, financial analysts estimate.

The United States and other nations have urged Europe to leverage up the fund, possibly with support from the European Central Bank.

But officials from the ECB and from Germany, the region's paymaster, remained wary of using the central bank, which has a strict mandate to pursue low inflation.

We should not think of leveraging a public pot of funds as a free lunch, said ECB Governing Council member Patrick Honohan.

Nonetheless, arming the euro zone with a bigger warchest to lend to governments or shore up banks was the focus of top finance officials from around the globe who met in Washington for semiannual meetings of the International Monetary Fund.

The sovereign debt crisis threatens to throw the euro zone into recession and has placed a troubling drag on an already slow U.S. economy. It could come to weigh on emerging economies too.

Brazil's experience with past crises suggests you have to confront the problems in a fast, consistent manner, said Brazilian central bank chief Alexandre Tombini.

The longer it takes, the higher the cost, the more contagion spreads. You have to act with overwhelming force.

The IMF's steering committee said in a statement that the euro zone was committed to whatever was needed to resolve the single currency bloc's crisis.

It warned that the global economy had entered a dangerous phase, calling for exceptional vigilance, coordination and readiness to take bold action to cope with Europe's financial stress and prevent it infecting others.

European officials were scrambling to put in place a comprehensive crisis-fighting plan by the time leaders from the Group of 20 nations meet in France in early November.

Greece is at the epicenter of the crisis but it has threatened to spread to several other euro zone countries. Italy, the third-biggest economy in the currency bloc, has also struggled to retain investor confidence, but Italian Economy Minister Giulio Tremonti said on Saturday its financial house was in order.

Treasury chief Timothy Geithner, in his most explicit warnings to date, said the ECB should take a more central role in fighting the crisis. The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, he said.

CALMING NERVES

Investors took some comfort on Friday from signs of new resolve by European officials, after nearly two years of what many saw as half-hearted action.

It is encouraging that ... European officials are signaling a better appreciation of the depth and potential consequences of the crisis, Mohamed el-Erian, co-chief investment officer of bond giant PIMCO, said on Saturday after further signals that Europe was bolstering its defenses.

Now they need to translate this into decisive actions underpinned by a common vision of what they want the euro zone to look like in five years time.

Some policymakers now talk openly of a possible Greek default and the need to move much more aggressively to prepare for it.

Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe, Geithner said.

His warning was echoed by China's central bank governor, Zhou Xiaochuan, who urged quick action to bring greater financial stability to the Europe.

Canada's central bank governor, Mark Carney, told Canadian radio that the euro area's bailout fund should be more than doubled to the neighborhood of a trillion euros.

BATTENING THE HATCHES

A default by Greece could cause a domino effect in other highly indebted euro zone countries, putting at risk European banks which hold their debt.

Greek Finance Minister Evangelos Venizelos said Athens was determined not to default and would stay in the euro zone.

Greece will always be in the euro and Greece will never go bankrupt because this would be destructive for the euro zone and for many other countries beyond the euro zone, he said.

Athens is in tense talks with the IMF and European authorities to secure a new 8 billion-euro installment of its rescue package.

In return, it has pledged deep austerity measures but negotiators are frustrated at what they say is Greece's slow reform pace. A loan payment, however, is still expected to be made in October. The next installment is due in December.

Venizelos was quoted by two newspapers on Friday as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted euro zone nation's cash crunch. European banks have agreed to take a 21 percent loss on their Greek bonds in a restructuring deal.

To battle the crisis, Geithner called for more cooperation between European policymakers -- who set their own tax and fiscal policy -- and their central bank.

One option to increase the potency of the EFSF would be for the ECB to commit large amounts of funding, with the temporary bailout fund putting forward money to cover potential losses.

German Finance Minister Wolfgang Schaeuble said he was open to the idea of leveraging Europe's rescue fund but said that did not necessarily mean the ECB should provide the extra firepower.

In another sign of new thinking by Europe, Schaeuble said Germany backed bringing forward the launch of the euro zone's permanent rescue mechanism, which is currently scheduled for mid-2013. The new mechanism would give policymakers powers to impose losses on private bondholders in a default and could be leveraged more easily than the temporary version of the fund.

Germany, as the strongest economy in Europe, needs to play a central role in any effort to curb a debt crisis, but public opinion there has turned against further big bailouts for fellow euro zone countries.

Germany China Timothy geithner