Treasury Secretary Timothy Geithner said on Thursday he was sure Europe would boost the firepower of its bailout fund to contain the debt crisis as pressure on Europe grew to act decisively to calm markets.

Geithner traveled to Europe twice in the last two weeks to discuss dealing with the crisis. He suggested boosting the firepower of the euro zone bailout fund -- the European Financial Stability Facility (EFSF) -- through leveraging to EU finance ministers last Friday.

Borrowing costs for euro zone countries like Spain and Italy have been rising steadily despite a euro zone agreement to allow the EFSF to buy bonds on the secondary market, extend preventive credit to countries and lend to recapitalize banks.

Investors are concerned about the apparent lack of unity among euro zone countries to support the single currency area's weakest members and they doubt that the bailout fund has enough money to finance Spain and Italy if needed.

Speaking ahead of a meeting of finance ministers and central bankers of the world's 20 biggest economies, Geithner said euro zone officials were aware of the risks.

They recognize that if you let, as the United States did in the early part of 2008, the momentum of these concerns build, they're very hard to arrest, much more expensive to arrest, Geithner said.

So you're going to see them act with more force in the coming weeks and months, he said.

I am very confident they're going to move in the direction of expanding the effective financial capacity of that set of financial ring fences because they have no alternative and they recognize that and they're going to do it, Geithner said.

They're just trying to figure out how to get there in a way that is politically attractive.

Canadian Finance Minister Jim Flaherty said on Wednesday European nations could get ahead of the game if they were prepared to increase the euro zone's bailout funds to 1 trillion euros from the current 440 billion euros.

French Economy Minister Francois Baroin said on Thursday the euro zone's priority was to get the new powers for the EFSF ratified by all euro zone countries as soon as possible, but the idea of leveraging the bailout fund was to be considered.

Leveraging the EFSF is not a priority for now, we could eventually consider how to leverage it to give it more systemic firepower, Baroin said, in a first clear admission from a senior euro zone official that the idea was under discussion.

The EFSF, which is likely to get its new tools of intervention by mid-October, may need large funds to take over from the European Central Bank the purchasing of Italian and Spanish bonds on the secondary market.

Economic and Monetary Affairs Commissioner Olli Rehn told a seminar in Washington these ECB responsibilities would gradually be transferred to the EFSF, with the two institutions working in parallel for a while before the bailout fund takes over bond interventions completely.

Furthermore, the EFSF could be used to beef up the capital of some European banks that hold Greek, Portuguese, Irish, Belgium, Spanish or Italian bonds, the size of which would depend on the assumed losses on these assets.

The IMF has warned such losses, combined with exposure to interbank lending risks, could total 300 billion euros and has been pushing for a recapitalization so that they can weather any potential losses.

Rehn said he did not agree with the IMF estimates but supported the idea of recapitalization.

It's essential that we continue to work in order to ensure sufficient recapitalization of European banks, Rehn said.

In this regard we do not share the numbers of the IMF which have been published today and leaked three weeks ago. We share the same concern and I can just say that is a work in progress.

(Reporting by Rachelle Younglai, Dan Flynn, Mark Felsenthal and Jan Strupczewski, Editing by Chizu Nomiyama)

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