G20 presses U.S. to act quickly to avoid default

Finance officials from the world's biggest economies on Friday pressed the United States to head off a potentially devastating default and vowed to proceed carefully when the time comes to normalize monetary policy.

A communique issued at the end of a meeting of Group of 20 finance ministers and central bankers said the United States "needs to take urgent action to address short-term fiscal uncertainties."

The U.S. federal government has been partially shut down since October 1 amid a budget standoff between congressional Republicans and the White House. Republicans also have refused to raise the nation's $16.7 trillion debt ceiling.

Officials from across the globe have warned that a failure by the Congress to raise the cap would wreak havoc on the global economy.

Anton Siluanov, finance minister of this year's G20 chair, Russia, said the mention in the G20 communique amounts to a "general wish for a fast solution of the problem."

U.S. President Barack Obama and Republican leaders moved to end their fiscal impasse on Friday but struggled on the details.

Solving the impasse is crucial to a world economy that the G20 group of developed and emerging nations said is showing signs of improvement but still facing "downside risks."

Maintaining that growth momentum is likely to get even more challenging as major central banks begin winding down the monetary stimulus launched during the 2007-2009 global financial crisis.

The prospect of the U.S. Federal Reserve reining in its stimulus by year end spooked world markets earlier this year and plunged some developing countries into turmoil as a gusher of cheap dollars that had poured into their economies dried up.

The G20 pledged to "ensure that future changes to monetary settings will continue to be carefully calibrated and clearly communicated," adding that wild swings in investment flows remain an "important challenge."

Emerging markets, which in recent years had expanded far faster than advanced countries, remain an important driver of global growth, the G20 said.

Most of the focus, however, was on the U.S. debt ceiling standoff.

Siluanov, at a news conference following the meeting, said U.S. Treasury Secretary Jack Lew left the G20 meeting early to participate in the negotiations between President Barack Obama and congressional Republicans.

"We trust that the administration and the Congress will arrive at a mutually acceptable solution," Siluanov said.

Major U.S. stock indexes rallied further on Friday on the heels of their biggest gain in nine months a day earlier on signs of progress in U.S. debt talks.

"It is quite clear that America has been pulled back from the brink, as sensible people expected," Australian Treasurer Joe Hockey told reporters on Thursday.

But there were also worrying signs of the chaos that could ensue if Washington were to miss a debt payment.

Banks and money market funds are shunning some Treasuries normally used as collateral for short-term loans, a sign that deadlock over the debt ceiling could disrupt a key source of day-to-day funding in the financial system.

Hong Kong's securities exchanges said on Thursday they would apply a bigger discount to Treasuries used as collateral.

"Politicians don't quite seem to have grasped how important the Treasury market is to the global financial system," HSBC chief economist Stephen King told Reuters Global Market Forum.

Some of the sternest warnings to Washington came from the biggest holders of U.S. government debt.

"They should have the wisdom to solve this problem as soon as possible," said Yi Gang, the No. 2 at China's central bank.

China is the United States' top foreign creditor with more than $1.2 trillion of U.S. Treasuries; Japan is a close second.

"The problem needs to be cleared quickly because the United States is in a position where it is pulling the rest of the world economy," said Bank of Japan Governor Haruhiko Kuroda.

(Reporting by Reuters' IMF reporting team; Writing by Steven C. Johnson; Editing by Chizu Nomiyama, Andrea Ricci and Tim Ahmann)