Central bankers, joined by their commercial counterparts and financial regulators from around the globe, met yesterday to discuss ways to ensure smooth economic growth amid concerns over huge US deficits that have plagued the dollar.

They gathered as the head of the International Monetary Fund (IMF) warned that the US budget deficit was "truly excessive", adding that the world's leading economy must resolve the problems linked to the imbalance.

IMF director general Mr Rodrigo Rato, writing in Italy's La Stampa newspaper, also said that some European countries needed to loosen their labour laws to boost the economy, and that Japan should capitalise on reforms the government had made.

"America must resolve the problems linked to its budget deficit, which is now truly excessive," Mr Rato wrote.

The two-day Basel meeting, held at the Bank for International Settlements, will review the need for co-operation among bankers and watchdogs as cross-border financial ties intensify.

This can mean that sparks in one corner of the globe could provoke fire in another.

For the global economy, signs are emerging that the expansion is losing steam after a robust 2004.

Japan's recovery is looking shaky, Britain is slowing and domestic demand has failed to revive in the euro zone.

This leaves the US sucking in imports and again the biggest driver of the world economy, along with emerging Asia, heading into 2005.

World growth topped 4.6 per cent in 2004, its best in over 30 years.

Growth is expected to exceed 4 per cent this year despite risks from a further fall in the US dollar and rising energy costs.

Entering the meeting, the Belgian central bank governor, Mr Guy Quaden, said: "As usual, (we will have) an exchange of views on the financial and economic outlook for the world."

The Bank of Japan governor, Mr Toshihiko Fukui, said the meeting would discuss a range of issues, including the outlook for the global economy.

For Japan, the world's second largest economy, he painted an optimistic picture.

"I think the outlook (for Japan's economy) is not so bad. I am always cautiously optimistic," Mr Fukui said.

"Including foreign exchange, there is a risk markets overall could move in an irregular manner at any time.

"So in that regard foreign exchange movements could be a risk, and we are watching them carefully."

In past meetings in Basel, central bankers have discussed currency moves, with some officials warning that a further dollar fall would encourage central banks to diversify their foreign exchange reserves away from dollar assets.

Analysts say a further fall in the dollar - which has lost 25 per cent in trade-weighted terms since early 2003 - could pose risks to the world economy, especially in export-reliant Asia.

The European Central Bank president, Mr Jean-Claude Trichet, holds a news conference this morning after G10 central bankers have discussed the world economic outlook.

Commercial bankers, who join the closed-door G10 meeting once a year, are expected to discuss barriers to consolidation and economic risks, one participant said.