With a global recession behind them, world leaders meeting on Sunday will seek to show they can bolster a fragile economic recovery while also cutting massive government debt levels.

U.S. President Barack Obama, China's Hu Jintao and leaders from the rest of the Group of 20 economic powers gather 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 sluggish growth in many developed countries right now, Washington fears Europe's drive to slash post-recession debt could derail the upturn, a worry also voiced by other G20 leaders, including Indian Prime Minister Manmohan Singh.

But Obama, like many of his counterparts, is also keen to preserve the unity of the G20.

We are aiming in the same direction, which is long-term sustainable growth that puts people to work, he said.

The G20 leaders are set to announce a concerted effort to halve public sector deficits within three years and stabilize government debt as well, but also 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.

DEBT WOES

Indeed, the main source of growth now is not the most advanced economies but the likes of China and other large emerging market economies, which are also worried about the debt woes of the industrial countries.

The aggregate debt of advanced countries within the G20 is expected to hit 107.7 percent of GDP this year, almost three times the 37 percent debt forecast for emerging market economies of the G20, and up from 80.2 percent at the outset of the crisis in 2007.

The G20 leaders are also set to commit to tougher capital requirements for banks and welcome Beijing's recent announcement it will shift to a more flexible exchange rate over time -- a move some hope will lead to a rise in the yuan and to fairer competition in world trade as a result, the draft communique shows.

The G20 gathering started with a working dinner on Saturday in the heart of Toronto, where some demonstrators smashed windows and set police cars on fire, marring an otherwise peaceful march by thousands of protesters.

Further protests were expected on Sunday.

There are clear signs that the sense of urgency that united the G20 countries last year to combat recession is no longer as strong after they pulled through the storm.

Germany, France and Britain are planning bank taxes to make the financial sector help pay for any future crises, but Canada and several emerging market economies in the G20 do not want to do likewise.

The draft communique shows countries will be given a choice whether to levy taxes on banks to recoup bailout costs, and can phase in stricter bank capital rules to fit national needs.

(Reporting by Reuters G20 team; Writing by Brian Love; Editing by Peter Cooney)

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