World leaders put the finishing touches on plans to build a more stable global economy on Sunday but backed away from one-size-fits-all pledges as two years of crisis give way to an uneven recovery.

Balance was the buzz word. The Group of 20 rich and emerging economies wants to halve budget deficits by 2013 without stunting growth, and clamp down on risky bank behavior without choking off lending.

The leaders must also show progress on a promise made in September to rebalance the global economy. That means export-reliant nations such as China and Germany need to look inward for growth and indebted countries including the United States need to change their borrow-and-spend ways.

G20 sources told Reuters that there would be no reference to China's yuan currency in a final statement to be issued when meetings conclude later on Sunday. An earlier version of the document, obtained by Reuters, had welcomed Beijing's recent move to loosen its grip on the yuan.

U.S. President Barack Obama, China's Hu Jintao and leaders from the rest of the G20 economic powers gathered for the fourth time since the financial crisis spilling out of the United States in 2007 fueled fears of a new Great Depression.

The G20, spanning the emerging economic powers as well as the developed economies where the trouble started, united last year to throw trillions of dollars into the battle against recession. The group has since become the predominant forum for coordinating the tackling of global economic challenges.

With a global recovery that remains fragile, it is incumbent upon us to act with the same unity of purpose, the same sense of urgency, and the same commitment to the enlightened exercise of our national sovereignties as we did at the depths of the crisis, Canadian Prime Minister Stephen Harper said in a statement at the opening of the G20 meeting.

SOURCES OF FRICTION

World leaders took their seats shortly after 9 a.m. Toronto time (1300 GMT). Germany's Angela Merkel was seated next to Britain's David Cameron, who joked earlier this week that he would try not to wrestle her to the ground when Germany and England meet in the World Cup later on Sunday.

More than 400 people were arrested after demonstrations turned violent in downtown Toronto on Saturday and police braced for more possible trouble on Sunday.

With sluggish growth in many developed countries, Washington fears Europe's drive to slash post-recession debt could derail the recovery, a worry also voiced by other G20 leaders, including Indian Prime Minister Manmohan Singh.

UN Secretary-General Ban Ki-moon said he understood the pressure to put public finances back on a sustainable path, but urged G20 leaders to be mindful of who bore the burden.

We must not balance budgets on the backs of the world's poorest people, Ban said at a G20 dinner Saturday evening.

The G20 leaders are set to announce a concerted effort to halve public sector deficits within three years and stabilize government debt. At the same time they recognize that the start of that process will take place at different speeds, according to a draft communique that Reuters obtained.

The document acknowledges that after the downturn, the economic recovery varies in pace across the world and there is a delicate balance needed between restoring budget discipline and sustaining growth.

There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery, it says. There is also a risk that the failure to implement consolidation when necessary would undermine confidence and hamper growth.

TACKLING DEBT MOUNTAINS

Halving deficits looks easily achievable, considering President Barack Obama has already pledged to do that and Europe sees the target as a bare minimum.

Stabilizing debt as a percentage of total output within six years may be more difficult. Obama's budget forecasts show the debt ratio rising at least through 2015, and most advanced Western economies face rising health care and retiree costs as their populations age.

Regulatory reform was another source of friction. U.S. lawmakers agreed on a package of reforms, but the G20 has struggled to come up with a common set of rules.

Josef Ackermann, chief executive of Deutsche Bank, said he was concerned the lack of international consistency would lead to an uneven playing field.

If you don't have a coordinated approach to regulatory (systems)... then there's the risk of regulatory arbitrage, he told Reuters in Cape Town.

(Reporting by Reuters G20 team; Writing by Emily Kaiser and Brian Love; Editing by David Storey)

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