China and Japan called for global co-operation today after a financial market rout signalled fear that Europe's debt crisis is spinning out of control and the US economy is in danger of another recession.

The comments from Washington's two biggest foreign creditors pointed to growing concern of contagion as Asian stock markets tumbled following Wall Street's steep dive a day earlier. European markets were expected to open down sharply.

French president Nicolas Sarkozy will discuss financial markets with German chancellor Angela Merkel and Spanish prime minister Jose Luis Rodriguez Zapatero today, Mr Sarkozy's office said in a statement.

In Japan, finance minister Yoshihiko Noda said global policymakers needed to confront currency distortions, the debt crises and concerns about the US economy.

"I agree that these subjects should be discussed," he told reporters a day after Japan intervened to sell yen. "Each problem is important, but how to prioritise these issues is something to discuss from here on in."

Traders said Japan sold yen for a second consecutive day to try to cap the currency's rise, which puts its exporters at a competitive disadvantage. The yen has become a popular safe-haven bet as concerns about the United States and Europe grow.

China foreign minister Yang Jiechi said US debt risks were escalating and countries should step up cooperation on global economic risks. Mr Yang, who is visiting Poland, called on the United States to adopt "responsible" monetary policies and protect the dollar investments of other nations.

The US Federal Reserve holds its next policy-setting meeting on Tuesday, and economists say there is little more it can do to try to spur growth. A flurry of weak economic data and Europe's debt woes have fed fears of a fresh recession, triggering yesterday's sell-off on Wall Street, which was the worst since the global financial crisis.

IHS Global Insight said there was now a 40 per cent chance the United States could slip into recession.

Japan and Switzerland are trying to reduce the allure of their markets as safe havens and after gold has more than doubled in price since the global financial crisis, many investors are having second thoughts about seeking refuge in the precious metal.

Bank of New York Mellon Corp said it had been overwhelmed with deposits, prompting it to charge some big customers a fee.

Investors slashed positions after the European Central Bank failed to include Italy and Spain in a fresh round of bond buying, even though yields on their debt shot above 6 per cent, the highest level since the euro was launched over a decade ago.

ECB president Jean-Claude Trichet said there was not full support in the central bank for the action, underscoring deep divisions within Europe over how to handle a debt crisis that has forced Greece, Ireland and Portugal to seek bailouts.

In the United States, just days after a bitterly fought, last-minute deal to raise the country's debt ceiling and avoid default, realisation has sunk in that many elements of the $2.1 trillion deficit reduction plan are short term and not locked in place.

Doubt has spread through markets that Congress will stick to implementing it in full after the November 2012 elections.

This, combined with a bout of poor economic data, points to a heightened risk of another slump. Lawrence Summers, a senior adviser to the US president until last year, argued in a Reuters column that there is a one in three chance of recession in the United States.

US employment numbers will be critical to market sentiment. Forecasts are for a tepid 85,000 jobs added in July, but a weak number or even contraction would boost concern that the United States is heading into recession.

The US jobless rate has risen for three consecutive months, and another increase would send a strong recession signal, Goldman Sachs said.

Many economists say chances are slim that Congress would endorse a further round of fiscal stimulus now that it is focussing on fiscal spending cuts.

Options for the Fed are also severely restricted. Policymakers appear reluctant to embark on another round of bond purchases, particularly given how controversial the last program proved to be.

Still, Fed chairman Ben Bernanke has noted other options, such as bolstering its assurance that rates will stay low for an extended period.

Nonetheless, few expect such efforts to have much of an impact, particularly since the economy's chief problem at the moment appears to be a lack of jobs, not credit.

"The Fed has mentioned what their menu of tools is for easing, the problem there is several of them really have no significant macro economic benefit," said Michael Gapen, senior economist at Barclays Capital.

Reuters