Inflation adds to G7 worries on markets crisis

By Swaha Pattanaik and Gernot Heller

WASHINGTON (Reuters) - Fresh signs of distressingly high inflation added urgency to a meeting of finance chiefs from rich nations on Friday that aims to agree on how to keep a credit crisis from dragging the global economy into recession.

Before Group of Seven finance ministers and central bankers met, British finance minister Alistair Darling urged swift implementation of proposals from a special study group to toughen scrutiny of international banks' risk management activities in the hopes of avoiding future crises and building confidence now.

A G7 source told Reuters the financial leaders would issue a "slightly more negative" assessment of the U.S. economy, which is ground-zero for the subprime mortgage meltdown that has triggered a global markets crisis. "It won't be alarmist or use the R-word," the source said, referring to the possibility of a U.S. recession.

Darling said policy-makers must step up to the severity of the situation the global economy faces.

"These are uncertain times," he warned. "I want to make the case for urgent action by the world's major economies to deal with what is the biggest economic shock since the Great Depression."

But differences about the degree to which regional economies are threatened and whether more taxpayer money should be put to use to help mop up toxic assets and stem a rise in U.S. home foreclosures may block any commitment for coordinated action.

Analysts say banks may be little more than half way through writing down bad assets that may eventually total $1 trillion in losses, underscoring the need for them to raise new capital.