Britain named Canadian central bank chief Mark Carney on Monday to head the Bank of England, springing the surprise choice of a foreigner to push reform of its troubled financial system.

A former Goldman Sachs investment banker who at the Bank of Canada guided the Canadian economy through the global economic crisis, Carney will succeed Mervyn King who retires in July.

Carney, who already plays a leading role in setting global banking rules, defended his departure from Canada and signaled that bigger problems awaited him in London.

"I'm going to where the challenges are greatest," he told an Ottawa news conference, adding that he would "rebalance the economy". That may suggest fostering British industry to reduce the economy's reliance on the financial services sector, which has been beset by huge losses and a series of scandals.

"It's very important for the global economy that the UK does well, that it succeeds in this rebalancing of their economy, that the reform of the British financial system is completed," he said.

During the crisis, Carney helped to make Canada's recession one of the shallowest of the world's richest nations. No Canadian bank needed government help, and the country recovered all the jobs it lost in the downturn relatively rapidly.

By contrast, Britain had to bail out Royal Bank of Scotland and Lloyds Banking Group, and the world's sixth-largest economy is still struggling to achieve growth four years after the crisis broke.

Carney, 47, will remain as head of the Financial Stability Board (FSB), a Basel-based body that sets global banking rules, when he moves to London next year, although the Bank of Canada itself does not regulate the country's banks.

"I believe he will bring the strong leadership and external experience that the Bank (of England) itself needs as it takes on its heavy new responsibilities for regulating our banking system," Chancellor of the Exchequer George Osborne, the finance minister, told parliament in making the appointment.

Carney will stay at the Bank of Canada until May, and then starts at the Bank of England in July. He will serve a five-year term, rather than the eight years that had been expected for the next BoE governor.

From next year the BoE will take charge of British financial regulation, almost doubling its size. This boosted the case for a governor with strong management skills and financial market experience, rather than someone in King's academic mould.

Carney's past as a Goldman Sachs investment banker has been a double-edged sword, as he fought to prove his loyalties lie with ordinary citizens, not his high-flying banker ex-colleagues. He clashed memorably last year with JPMorgan Chase & Co Chief Executive Jamie Dimon in Washington, when the U.S. banker argued against new regulations for the financial sector.

HUGE SURPRISE

Until now, Carney had strongly played down the possibility of heading the British central bank. "(It's a) surprise, huge surprise," said Peter Dixon, an economist with Commerzbank. "That was the one guy I didn't have in the running.

Carney said he did not apply for his new job as part of the formal process, and discussions intensified only in the last two weeks.

He has already spent a decade in Britain as a postgraduate student at Oxford and at Goldman Sachs - where European Central Bank President Marin Draghi also once worked. Carney, whose wife is British, will apply for citizenship, Osborne said.

Carney pointed to the steady state of Canadian banks, which also contrasts to some of those in Britain that have been sucked into scandals over rigging the Libor interest rate and mis-selling financial products to people who didn't need them.

"We have a system that works very well. It's been tested under the biggest economic shock and financial shock that any of us will ever see in our lifetime, and it has passed that test," he said.

His job has been helped in recent years by booming prices for Canada's commodities exports from oil to gold and grain.

The still-athletic Carney - a sub-four-hour marathon runner - was once described as "un-Canadian" by one Ottawa official because of his sometimes confrontational style.

Britain's government had been widely expected to pick Deputy Governor Paul Tucker as the new chief, ignoring calls for a more radical option to shake up the central bank.

Canadian Finance Minister Jim Flaherty expressed the mixed feelings in Ottawa about Carney's departure. "It's bitter-sweet. It's our loss. His loss will be felt," he said.

The foreign exchange market passed a similar judgment with sterling rising against both the U.S. and Canadian dollars. The pound hit to a 2-1/2 week high against the Canadian dollar to C$1.5950 from C$1.5898 beforehand.

(Additional reporting by Matt Falloon and Kate Holton in London, and Louise Egan in Ottawa; Writing by Maria Golovnina; Editing by David Stamp and Alastair Macdonald)