Mumbai: Finance ministers from the Group of Seven rich nations have vowed to put up concerted efforts to stabilise world financial markets shaken by the US subprime mortgage market crisis and shore up the global economy.

The finance ministers and central bank chiefs of the seven richest nations who met in Tokyo said they all had a vested interest in global financial stability.

They acknowledged the industrialised economies are set to slump in the near future but said the economies' fundaments remained strong.

In a draft statement, the finance ministers urged banks to come clean on their subprime loans while at the same time cautioning on the high inflation expectations in some economies.

"Where coordinated action is found to be necessary, we will do all that is needed," Financial Times quoted British finance minister Alistair Darling as saying in an interview. "We are all after the same thing and this is to restore stability," he said.

US treasury secretary Henry Paulson urged banks to take losses and raise capital quickly to stave off a credit crunch.

"The worst thing is if they don't raise capital, if they shrink their balance sheet and then restrain their lending," Paulson told Japan's Nikkei newspaper.

A further deterioration of the US housing market, tighter credit, high oil and commodity prices and growing inflationary pressures would hurt global growth further, the G7 warned.

European nations, however, are apprehensive of the US Federal Reserve's aggressive rate cuts and the $150 billion economic stimulus plan.

The European Central Bank (ECB) stressed the risk to eurozone economic growth despite inflationary pressures, that sent a signal that the ECB too may cut interest rates.

EU ministers were concerned about the strengthening of the euro, which has soared against the dollar since the Fed began cutting rates in September. However, the currency retreated after the ECB indicated plans to cut rates.

Many G7 leaders also feel the weak yuan is giving China an unfair trade advantage, and have called on Beijing to step up domestic investment to help rebalance the world economy. 

French finance minister Lagarde noted that while her US counterpart Henry Paulson expressed grave concern about the state of the US housing market and banks he did not use the word "recession".

While many economists in the US, including former Fed chairman Alan Greenspan, believe the US economy is already in or near a recession, Paulson feels that while US growth will slow, a severe downturn is unlikely.

While the current financial crisis is serious and persisting, Paulson said, "As the financial markets recover from this period of stress, as of course they will, we should expect continued volatility as risk is repriced."

Paulson said he expected US economic growth to continue in 2008 but said the outlook faced risks that had made a fiscal stimulus package absolutely necessary.