The Managing Director of the International Monetary Fund (IMF), Mr. Dominique Strauss-Kahn, has said that rich nations have so far failed to restore confidence in the world financial system and warned seriously against the huge implications. "The world financial system is teetering on the brink of systemic meltdown," he warned in Washington.

The IMF boss who endorsed a new action plan by the G7 group, said the IMF was ready to lend to countries in dire need of capital.

The 15 eurozone leaders will meet in Paris later to try to establish a common approach to the markets crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present a number of proposals at the summit to ease the credit freeze that has caused the collapse of several leading international banks.

But after meeting in Paris on Saturday, the two leaders said the summit would not result in a joint financial rescue fund for Europe, in the model of a $700bn rescue by the US government.

French Economy Minister Christine Lagarde said the eurozone leaders would discuss the possibility of guaranteeing interbank lending and put "meat" on the "skeleton" of a five-point plan by the G7 group of most industrialised nations to resolve the crisis.

Earlier, G7 ministers had released the five-point plan to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market.

George Bush says the US would lead the response to the crisis. "Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," said Mr Strauss-Kahn.

He later told a news conference: "The first co-ordination between advanced countries and the rest of the world is now on track."

The IMF chief's strong words reflect a belief that the global financial crisis can be contained, says the BBC's economics correspondent Andrew Walker in Washington.

Mr Strauss-Kahn was joined at the White House by finance ministers from the US, Canada, France, Germany, Britain, Italy and Japan, as well as World Bank President Robert Zoellick.

Following talks with the economic leaders, Mr Bush also pledged co-ordinated action, saying it was serious global crisis which demanded a serious global response.

The meeting came a day after Asian, European and US markets continued to panic despite rate cuts and cash injections by central banks, amid widespread fears of a global recession.

Late on Friday, US Treasury Secretary Henry Paulson said the US planned to invest directly in banks for the first time since the 1930s, following a similar UK programme of partial bank nationalisation.

We must redirect the markets so that they serve the people, and not ruin them, Angela Merkel said.

The G7 had earlier not ruled out adopting another part of the British plan - to guarantee borrowing between banks - as they issued their plan in Washington.

The G7 also left the door open to further reductions in interest rates, which six central banks this week jointly cut by half a percentage point.

But our correspondent says there is some disappointment that the G7 plan lacks detail.

Ahead of the emergency summit of eurozone leaders, UK Prime Minister Gordon Brown will hold talks with Mr Sarkozy.

Chancellor Merkel said governments must "redirect the markets so they serve the people, and not ruin them".

The heads of the EU's four biggest economies - Britain, France, Germany and Italy - held a first crisis summit last week, but were split over the need for a common plan.

Analysts say another week of plunging stock markets has focused minds and the real test of this weekend's scramble by world leaders to shore up the international financial system will come once markets reopen again on Monday.

Meanwhile, Europe's leaders have been racing to throw banks a lifeline before markets reopen.

The 15 eurozone leaders are meeting in Paris to try to establish a common front to tackle the financial crisis.

They were joined by British PM Brown, who urged them to adopt similar measures to his bank rescue plan.

According to a draft statement, the leaders plan to guarantee loans between banks.

Banks' unwillingness to lend to each other has been the key problem of the credit crunch and it is hoped that loan guarantees will solve it.

Money lent for up to five years would be guaranteed but the banks would be charged at commercial rates for the service.

The draft statement also says that the eurozone leaders are determined not to let any major financial institutions fail and will step in to provide extra capital to failing banks if necessary.

A member of the French government has already said that the French cabinet will hold a special session on Monday to approve a bill offering state guarantees and recapitalisation to banks in trouble.

Several other countries also announced steps to protect their banks and depositors on Sunday.

Portugal's finance minister announced a 20bn euro ($27bn; £16bn) state guarantee for banks.

Norway is to borrow 41bn euros to pay for measures to provide extra cash to financial markets.

Australia has agreed to guarantee all deposits in the banks, building societies and credit unions for the next three years.

New Zealand is guaranteeing all retail bank deposits for two years.

The British rescue plan, which was announced last week, involves making £50bn ($85bn) available to buy stakes in major banks, another £200bn for short term loans from the Bank of England and offering £250bn of loan guarantees for banks lending to each other.

The French plan sounds similar, although the details are not yet clear.

After meeting other EU leaders, the British prime minister said he expected confidence in the banking system to be restored "in the next few days".

"The decisions we make in the next few days are decisions that will affect us for many years ahead," Mr Brown said.

He added that European leaders had found "common ground" and agreed "co-ordinated action" on the way forward.

Gilles Carrez, a senior member of the French parliamentary finance committee, said earlier: "We need a law to put in place a state guarantee and an organ that will be charged with raising funds to help banks deal with their need to recapitalise."

The heads of the EU's four biggest economies - Britain, France, Germany and Italy - held a first crisis summit last week, but were split over the need for a common plan.

Ahead of Sunday's eurozone meeting, French President Nicolas Sarkozy and German Chancellor Angela Merkel ruled out a joint financial rescue fund for Europe, along the lines of a recent $700bn rescue by the US government.

Late on Friday, the architect of the US scheme, Treasury Secretary Henry Paulson, said the US planned to invest directly in banks for the first time since the 1930s, following the UK programme of partial bank nationalisation.

Meanwhile, the first banks to get money under the UK government's £50bn bank rescue plan could do so as soon as this morning.

The banks and the Treasury are working on announcements to be made before the markets open, according to BBC last night.

According to the report, the first banks to take up the recapitalisation are likely to be HBOS and Royal Bank of Scotland (RBS).

A key aspect of the announcements will be what the government requires the banks to do in return for the cash.

"What we're doing over the weekend is looking at specifics, how do we implement it," Alistair Darling, chancellor of the exchequer, told the BBC on Saturday.

"We'll be making an announcement at the beginning of the week," he added.

The government is not expected to insist on having its own appointees on the boards of the banks, although other strings are likely to be attached.

These could involve curbing executive pay and resuming normal lending to individuals and small businesses.

The government has said that it will negotiate terms individually with each bank that participates in the scheme.

"What we're doing now is talking with all of the banks about how we implement the programme," Yvette Cooper, chief secretary to the Treasury, told the BBC.

"We'll set out the sort of strings that will be attached on a case-by-case basis," she added.

The Chief Executive of RBS, Sir Fred Goodwin, is expected to resign and be replaced by Stephen Hester, the former finance director of Abbey who is currently chief executive of British Land.

Earlier in the year, RBS raised £12bn from its shareholders, which is now more than the bank is worth on the stock exchange.

Hefty falls

Banks trying to raise new capital as part of the scheme may choose to approach their own shareholders again instead of taking part of the government's £50bn.

If they go to their existing shareholders for funding, the government has said it will underwrite the issues, which means that if all of the shares on offer are not sold then it will step in and buy them.

That means that the government could end up owning large stakes in the banks and having extensive voting rights.

This would be different to the preference shares that the government would get for additional capital.

The difference is that normal shares carry voting rights while preference shares do not, but preference shareholders, as the name suggests, get access to any money that a company makes before the normal shareholders.

If the agreements are reached ahead of trading on Monday morning, it will be just another factor for investors to take into account following the huge falls on stock markets last week.