They hope to agree on long-term reforms to reduce the risk of further crises.

But few expect a major breakthrough without President-elect Barack Obama, whose long-term role will be key.

Divisions have also emerged between Europe, which wants stricter market rules, and the US and other countries, which prefer more moderate reforms.

President Bush has been hosting a working dinner at the White House, to be followed by five hours of formal talks on Saturday.

Opening the summit, Mr Bush dampened hopes for quick solutions.

"This problem did not develop overnight and it will not be solved overnight, but with continued cooperation and determination it will be solved," he said.

The participants hope to agree on a common set of principles for future reform, including changes to the organisations charged with regulating the world economy.

Later summits are expected focus on working out the details of the reforms needed.

Speaking after the opening dinner, German Finance Minister Peer Steinbrueck said "the window of opportunities (for financial reform) has never been so wide open as at present".

Meeting on the sidelines of the

summit, the Japanese, Chinese and South Korean finance ministers said they might expand their mutual currency swap arrangements.

'Prosperity and hope'

Earlier, President Bush had insisted the financial crisis was not a failure of free-market capitalism.

Speaking in New York, he said the surest way back to sustained economic growth was not to reinvent the system, but to reform it.

"The answer [...] is to fix the problems we face, make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people all across the globe," he said.

Canadian Prime Minister Stephen Harper said that he thought it was unlikely that the major economies of the world would consent to have external control of their regulatory systems.

"Compulsory governance...is unrealistic," he said.

However, European leaders have signalled that they are seeking more far-reaching initiatives.

"We want to change the rules of the game in the financial world," said French President Nicolas Sarkozy.

German Chancellor Angela Merkel said she was surprised to hear warnings against too much regulation of financial

markets when the crisis had not yet been overcome.

China holds the cards

China is likely to be key to any reforms agreed.

With nearly $2 trillion in foreign exchange reserves and an economy that is still expanding, albeit at a slower pace, it is one of the few countries attending that has the cash to help countries in distress.

UK Prime Minister Gordon Brown has taken the lead in urging China and other countries with big cash stockpiles to finance the International Monetary Fund so that it can make more emergency loans.

"We will actively participate in rescue activities for this international financial crisis," said Yi Gang, deputy governor of the Chinese central bank.

However, in exchange China is likely to want to hold more power at the IMF, which is dominated by the US and the EU.

Japan has announced it is prepared to lend up to $100bn to the IMF to help emerging economies hit by the financial crisis.

The G20 meeting is bringing together both leading industrial powers such as the US, Japan and Germany, and emerging market countries such as China, India and Brazil.

The countries represent 85% of the world economy.