World leaders cast about for a common approach on Saturday to securing an uneven economic recovery that is showing signs of fading.

The Group of Eight industrialized nations were meeting for a second day at a resort north of Toronto, followed by a summit here of the larger G20 club of rich and emerging nations.

As the official agenda shifted toward economic and political issues from aid and development, wedge issues such as shrinking government debt piles, regulating banks, and the value of China's yuan currency moved to the fore.

A global recession has given away to a three-speed recovery, with Asia's growth roaring ahead while the U.S. recovery plods along and Europe lags behind.

As a result, G20 unity is fracturing, with leaders disagreeing over how best to safeguard recovery. Unemployment remains high in most advanced economies, and growth has slowed since late last year.

Quite honestly, I think the world economy is faced with a number of uncertainties, India's Prime Minister Manmohan Singh told the Toronto Star. As it was gradually getting out of the deep depression or deep recession, we've had the euro zone crisis and the sovereign debt crisis.

In Europe, where Greece's debt troubles have trained attention on unsustainable public spending, the emphasis is on budget cuts to restore confidence. The United States wants the rest of the world to bolster domestic demand and not rely on Americans as consumers of last resort.

Europe's policy response will be a major determinant of which way the world economy evolves, Singh said.

Despite the differences, cameras showed friendly greetings as the G8 leaders took their places at a round table in the luxury Deerhurst resort. A smiling President Barack Obama shook hands with his counterparts and then chatted with France's President Nicolas Sarkozy.

CHINA'S CURRENCY

Canadian Prime Minister Stephen Harper will later urge his G20 colleagues to commit to additional steps to support recovery, although he has also praised Britain for its early efforts to tackle a gaping budget deficit.

At a working dinner to kick off the G20 meeting on Saturday and Sunday, Harper will praise the group for progress in fulfilling pledges at its previous three summits, Harper's spokesman Dimitri Soudas told reporters.

The prime minister also will point out that if the G20 is to be the premier international economic forum it will need to take further steps to protect the recovery and set in motion strong, sustainable and balanced growth, he said.

Balanced growth was the key phrase when G20 leaders last met in Pittsburgh in September. Countries agreed to work together to iron out trade imbalances that pose a threat to the global economy.

Export-rich China is at the heart of the rebalancing debate. The United States wants China to let its yuan currency rise more rapidly in order to discourage exports, while Washington has pledged to change its borrow-and-spend ways.

China's surprise announcement a week ago that it was loosening its grip on the yuan appeared timed to defuse G20 debate. China said earlier this month that its exchange rate was a sovereign matter and had no place in G20 discussions.

Some officials told Reuters that Beijing wanted no mention of the yuan in the official communique released at the summit's conclusion, even if it were a positive comment.

It was discussed in terms of welcoming the move, one official said. The Chinese did not want a reference to it and there was no language on urging a real appreciation.

NORTH KOREA

While economic matters dominated the discussion, world leaders also planned to discuss global security matters such as North Korea. The G8 was considering a sharp rebuke of North Korea, which South Korea blames for the sinking of a warship in March that killed 46 sailors.

One G8 source told Reuters the group might issue a statement in which it would deplore North Korea's actions.

(Reporting by Louise Egan, Sumeet Desai, Reuters G20 reporting team; Writing by Emily Kaiser; Editing by David Storey)

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