Governments around the world tried on Friday to calm financial markets shaken by fears that Greece's debt crisis could cause difficulties for other European economies.

Group of Seven finance ministers discussed the problems in a conference call after U.S. Federal Reserve officials expressed concern and President Barack Obama told German Chancellor Angela Merkel by telephone that he backed efforts to rescue Greece.

World stocks held near a three-month low, despite strong U.S. jobs data, because of fears that emergency loans from the European Union and International Monetary Fund might not be sufficient to prevent a Greek default.

We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community, Obama said.

He said regulatory agencies were investigating a sudden drop on U.S. markets on Thursday, which he called unusual market activity, and would recommend appropriate action. The G7 ministers also agreed to keep a close eye on the markets.

Obama and Merkel spoke before a summit in Brussels at which euro zone leaders said they would put their political stamp of approval on the EU-IMF deal to release 110 billion euros ($147 billion) over three years to help Greece overcome its debt and budget crisis.

Merkel said the leaders would also discuss accelerating moves on tightening financial regulation to prevent such crises in the future, and all 16 countries that use the euro must abide by rules on targets such as for national debt and deficits.

First, we must speed up the regulation of the financial markets. Time is running out, this has to happen quickly, she told reporters in Brussels at a meeting attended by European Central Bank President Jean-Claude Trichet.

Merkel, who presides over Europe's largest economy, said she would not rule out reform of treaties to ensure budget rules are toughened. Other EU leaders have resisted such changes and the 27-country bloc has struggled for unity during the crisis.

SYSTEMIC PROBLEM

EU officials said the euro zone leaders were discussing a declaration in which they would demonstrate solidarity with Greece, call for stronger budget discipline and try to show markets they were in control of the situation.

This is a systemic problem. It's a question of the stability of the euro, one EU official quoted Trichet as saying during the meeting, adding that he had called for more efforts to cut budget deficits.

Hours before the meeting, the German parliament approved its share of the Greek rescue, the largest contribution by any of the euro zone countries. The Dutch parliament also approved its part of the deal and Italy's cabinet has given initial approval.

But in a potential obstacle, five German academics filed a legal challenge to the package, reflecting widespread German public opposition to the measure.

Philadelphia Federal Reserve Bank President Charles Plosser said the crisis did not pose a huge risk to the United States, but this did not mean it could not evolve into one.

The challenges that Greece pose are at the moment primarily for Europe more broadly ... that can spill over to us in the form of a weaker market for our exports, he said.

The more direct danger is of course concerns about the financial markets and how they will behave.

Pamela Cox, the World Bank's vice president for Latin America, said the region not was in danger of direct fallout from Greece and the euro zone's debt crisis. But if there is a global contagion, Latin America will be affected, she said.

BATTLE BETWEEN GOVERNMENTS AND MARKETS

Merkel said there was a battle between governments and markets, and French Prime Minister Francois Fillon saw no reason for the markets to take aim at indebted Spain and Portugal.

Dismissing suggestions the euro zone was about to break up, European Central Bank Governing Council member Guy Quaden told a Belgian newspaper: Portugal, Spain, Ireland or Italy are not in the same situation as Greece.

Euribor bank-to-bank lending rates had earlier reached their highest level in almost four months and the euro traded close to a one-year trough.

The market volatility could prompt China to move more slowly than expected to let its yuan currency appreciate, foreign exchange strategists said.

Greece's parliament backed an austerity plan on Thursday but selling accelerated across markets after the ECB said it had not considered buying government bonds to ease Greece's debt crisis.

European investment-grade corporate credit default swaps hit their widest levels in more than a year, and there was a rise in the premium that investors demand to buy peripheral euro government bonds rather than those issued by Germany.

Greece's 30 billion euro ($40 billion) austerity bill imposes years of hard measures in return for the joint rescue by the EU and IMF, and has led to violent protests in Athens.

Greek Prime Minister George Papandreou sought to ease any concern over his country's commitment to the austerity measures when he arrived for the euro zone meeting in Brussels.

The Greek people have endured the strain of the economic crisis during the last few months, yet both the government and the Greek people are absolutely determined to change the path for Greece to one of stability and growth, he said.

(Additional reporting by Noah Barkin in Athens, Gernot Heller in Berlin, Ilona Wissenbach, Philip Blenkinsop and John O'Donnell in Brussels, George Matlock in London, Pedro Nicolaci da Costa in Richmond, Virginia; writing by Andrew Roche and Timothy Heritage; editing by David Stamp)

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