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In unusually direct language, finance ministers and central bankers of the Group of 20 major economies said they expected an October 23 European Union summit to "decisively address the current challenges through a comprehensive plan".

French Finance Minister Francois Baroin, who chaired the meeting, said Berlin and Paris, the leading euro zone powers, were well on the way to agreeing a plan to reduce Greece's debt, stop contagion and protect Europe's banks.

Non-euro countries highlighted the damage the European crisis was already doing to their economies and underlined the urgent need for action by the 17-nation single currency area.

"Europe needs to get its act together because unless the crisis is put to an end, it will start to affect emerging economies which have enjoyed strong growth," Japanese Finance Minister Jun Azumi said.

His Canadian counterpart, Jim Flaherty, said the risk of a global recession would be dramatically higher if next Sunday's European summit failed to deliver.

British finance minister George Osborne told reporters his continental euro zone colleagues "will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the crisis".

Treasury Secretary Timothy Geithner told reporters he was encouraged that the latest EU moves toward an overall strategy to tackle the two-year-old crisis contained the right elements, notably a recapitalization of European banks.

"They clearly have more work to do on the strategy and the details, but when France and Germany agree on a plan together and decide to act, big things are possible," Geithner said.

"I am encouraged by the speed and direction in which they are moving."

The communique urged the euro zone "to maximize the impact of the EFSF (bailout fund) in order to address contagion". EU officials said the most likely option was to use the 440 billion euro fund to offer partial loss insurance to buyers of stressed member states' bonds in a bid to stabilize the market.

Efforts by some countries to increase the IMF's warchest to fight the crisis ran into resistance from the United States and others on Friday, burying the idea for now and putting the onus firmly back on Europe.

Geither said the IMF already had very substantial financial firepower and Washington would support committing more of the existing resources to supplement a well-designed European strategy with more euro zone funding.

As the G20 finance ministers and central bankers met in Paris, anti-capitalist protesters rallied around the world, shouting their rage against bankers and politicians accused of ruining economies and condemning millions to hardship through greed and bad government.

Many of the protests, galvanized by the Occupy Wall Street movement, were small and peaceful. But in Rome hundreds of hooded rioters burned cars and smashed shop and bank windows in some of the worst violence in the Italian capital for years.

RESISTANCE FROM BANKS

Germany and France are trying to put flesh on the bones of a crisis resolution plan in time for the EU summit.

It will involve plans to recapitalize banks, make Greek's debt mountain more sustainable and ramp up the firepower of the bloc's rescue fund..

For once in the long-running crisis, the timetable is ambitious. But analysts see risks that forcing banks, the main source of business investment in Europe, to raise more capital could doom the region's faltering growth, and that the reduction in Greek debt may be too small to avoid a default.

There were growing signs that Athens' creditor banks will fight any attempt to make them shoulder a bigger burden in restructuring Greece's debts. The lead negotiator of the banking lobby representing private bondholders said there were no grounds to impose bigger "voluntary" losses on their debt than the 21 percent agreed in July, which looks insufficient.

"We do not see that a compelling case has been made to reopen the (July) deal. A deal is a deal," Charles Dallara, managing director of the Institute of International Finance (IIF) told the Financial Times.

The G20 statement pledged to ensure banks are adequately capitalized and have sufficient access to funding, and said central banks would continue to provide liquidity to banks as required.

Fears of a Greek default have undermined confidence on volatile markets since late July, with global stocks falling 17 percent from their 2011 high in May.

But they have picked up since the leaders of France and Germany set an end-October deadline for comprehensive action.

NO CHANGE ON YUAN, FOREX LANGUAGE

While the European crisis was the main focus, Washington and Beijing continued to spar over China's currency.

Geithner said China should let the yuan rise more rapidly to benefit global growth.

Chinese Premier Wen Jiabao rebuffed U.S. pressure for a more rapid appreciation, assuring exporters at the Canton Fair in Guangzhou on Saturday that China's exchange rate would remain "basically stable" to protect them.

Chinese negotiators prevented the G20 from going beyond wording issued at their last meeting in Washington on the need for emerging market nations' currencies to be more flexible.

Ministers agreed that advanced economies would cut deficits while emerging economies would continue their move toward greater exchange rate flexibility and boost domestic consumption.

French President Nicolas Sarkozy wants progress on bigger goals such as setting parameters to measure global imbalances and reining in speculative capital flows at a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico.

(Additional reporting by Daniel Flynn, Francesca Landini, Randall Palmer, Gernot Heller, Glenn Sommerville, Kevin Yao, Abhijit Negoy; Writing by Janet McBride/Mike Peacock/Paul Taylor)

In a Special Edition letter posted on PIMCO's website, Gross, who runs the $242 billion PIMCO Total Return portfolio, wrote that he underestimated the contagion effect from the Europe debt crisis and the U.S. debt ceiling debacle.

"As Europe's crisis and the U.S. debt ceiling debacle turned developed economies toward a potential recession, the Total Return Fund had too little risk off and too much risk on," said Gross, who also shares the title of co-chief investment officer at Pacific Investment Management Co. with Mohamed El-Erian.

Gross, known as the "bond king", came under heavy criticism earlier this year when he bet heavily against U.S. Treasuries which have turned out to be one of the biggest outperformers of 2011.

His fund's poor performance led Gross to simply call his open letter to investors, "Mea Culpa."

It is up only 1.06 percent year to date versus the benchmark BarCap U.S. Aggregate Index which is up 3.99 percent.

Gross, who helps manage more than $1.2 trillion at PIMCO, said late Friday the Total Return fund had positions in German bonds and Canadian Treasuries to counter the U.S. underweight position, "but not enough."

He added that minor percentages of emerging market corporate and sovereign debt, effectively denominated in their local non-dollar currencies, did not perform well either.

"The simple fact is that the portfolio at midyear was positioned for what we call a "New Normal" developed world economy - 2.0 percent real growth and 2 percent inflation," Gross said.

That's all changed, of course. Gross said PIMCO's internal growth forecast for developed economies "is now zero percent over the coming several quarters and the portfolio more accurately reflects this posture."

Last week, Reuters reported that Gross ramped up buying of mortgage-backed securities in September, albeit by using leverage, on the likelihood the Federal Reserve's reinvestment program in those securities will boost prices significantly.

Gross increased mortgage debt to 38 percent of assets in September, from 32 percent in August, as the U.S. central bank announced last month that it "will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities."

His move into mortgage-backed securities also comes as the PIMCO Total Return fund's cash equivalents and money-market securities fell to negative 19 percent September, from negative 9.0 percent in August.

In having a so-called negative position in cash equivalents and money-market securities, it is an indication of using derivatives and short-term securities as collateral in order to boost the fund's buying power with leverage.

Gross' move to seek more yield by putting more money into mortgage bonds is yet another bold bet which many will be watching after Gross's call on Treasuries cost his fund's performance. In doing so, he is effectively extending the average duration of his fund's investments, making them potentially more exposed to a rise interest rates.

Clearly, Gross is betting interest rates will remain low for some time as the world economy continues to struggle.

In his "mea culpa" letter, Gross resorted to baseball analogies and metaphors. He closed his letter by saying: "This is big league ball, where your ticket holders come to the park expecting not a circus-Willie Mays-catch but more wins than losses and a year-end performance that places your bond assets near the top of the standings."

He added, "Baseball metaphors aside, we know why PIMCO Total Return is arguably the largest and hopefully the greatest bond fund in the world."

The running tally as of Saturday morning showed 56 percent of workers had cast votes in favor of the new contract which would give most workers a signing bonus of $6,000, and at least $16,000 in bonuses over the life of the pact.

That is up from 54 percent in approval on Friday night and 51 percent in favor on Friday morning.

There are about 41,000 unionized Ford workers. The vote continues at Ford's U.S. plants through Tuesday.

As of Saturday morning with 44 percent of the expected overall vote counted, there were 8,577 "yes" votes and 6,710 "no" votes, according to posting by the United Auto Workers Ford Department.

General Motors Co's 48,500 union workers, who have approved their contract already, get $11,500 at a minimum in bonuses, including a $5,000 signing bonus.

At Chrysler Group LLC, the weakest of the Detroit Three automakers, guaranteed bonus payout is $5,750, including a signing bonus of $1,750.

Chrysler's 26,000 unionized workers will vote over the next two weeks on a tentative contract agreement reached by negotiators on Wednesday.

Veteran Ford auto plant workers make $28.12 per hour, and will see no increase in base pay. They have not received a base pay raise since 2003. Skilled trades workers make several dollars per hour more.

Wages for new hires that currently are about $15.50 per hour at Ford would rise to $19.28 per hour over the life of the contract.

(Reporting by Bernie Woodall; Editing by Vicki Allen)

After the steepest two-week rally in more than two years, the S&P 500 is at the top end of its range for the past two months.

The benchmark closed Friday above 1,220 for the first time since early August, and bets against the recent rally could start to pile up.

But Monday earnings and guidance from IBM (IBM.N), followed by results from Apple (AAPL.O), Coca-Cola (KO.N) and Intel (INTC.O) on Tuesday could give shorts a reason to put their guns down. The S&P could be on its way to a third straight winning week --a streak not seen since February.

"There are some fundamental catalysts which could play right into the momentum," said Richard Ross, global technical strategist for Auerbach Grayson in New York.

He said the S&P 500 "has potential to take out that well defined resistance (at 1,220) and it would be a fast move up to the next level, between 1,265 and 1,275."

The sharp turnaround in stocks from a 2011 low hit Tuesday took many by surprise, and buying has spurred more buying as traders and money managers try to catch up with the benchmark's performance.

The pattern repeated itself Friday, with the three major indexes closing at or near session highs.

For the week, the Dow Jones industrial average .DJI gained 4.9 percent, the S&P 500 .SPX added 6 percent, and the Nasdaq Composite .IXIC rose 7.6 percent.

Ten of the 30 Dow components, including Microsoft (MSFT.O), American Express (AXP.N) and Johnson & Johnson (JNJ.N), are scheduled to report quarterly results next week.

Big financial names expected to report include Citigroup (C.N), Goldman Sachs (GS.N) and Wells Fargo (WFC.N), which follow Thursday's earnings disappointment from JPMorgan Chase & Co (JPM.N) that battered the sector.

Reported and estimated earnings growth for the current earnings season is seen at 12.4 percent for all S&P 500 companies, according to Thomson Reuters data. That is down from this year's estimate peak of 17 percent in July.

But companies like Apple and IBM, which hit lifetime closing highs on Friday, are expected to trounce expectations. And positive surprises could play into the buying momentum.

"Price will start to discount even more optimism," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion in mutual funds.

"Growth companies, given the high expectations, need to have a 'wow' factor when it comes to reporting and beating earnings," he said, adding it was certainly possible for these two names to rise further.

The VIX volatility gauge .VIX has declined in the past weeks, closing on Friday at its lowest level since August 3. That could translate into less uncertainty and more of the buying frenzy that drove the S&P 500 to its largest two-week percentage advance since mid 2009.

ECONOMY: LESS BAD THAN FEARED

Softening economic numbers in the United States and abroad, as well as a grinding expansion of the euro zone sovereign debt crisis, stymied investors and drove stocks and commodity prices to heavy losses in the third quarter.

But despite Greece's slow crawl toward a default and rising borrowing costs in Spain and Italy, the perception of efficient action in Europe gave investors the confidence to return to equities --or at least cover their short bets.

Economic numbers, expected at a certain point in the summer to show the U.S. economy was sliding back into recession, have generally come in above those lowered estimates.

USAA's Latif said that even if current levels are subdued and expectations are lowered "it's definitely very encouraging" to have data land better than expected.

Among the main economic indicators due next week are industrial production and capacity utilization on Monday; producer and consumer inflation on Tuesday and Wednesday, respectively; and weekly jobless claims on Thursday. The week closes with the final reading of the Reuters/University of Michigan consumer sentiment index.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

The make or break moment in the two-year-old crisis that has spread far beyond starting point Greece could come at a summit of EU leaders on October 23. Germany and France have promised to set out a plan to halt the contagion, protect Europe's banks and the wider world economy.

A draft communique, which must still be signed off by G20 finance ministers and central bankers "looks forward to the EU summit taking appropriate decisions," according to a European G20 source - unusually direct language for G20 diplomats.

Euro zone policymakers are trying to put flesh on the bones of a crisis resolution plan in time for the summit in eight days' time. It will involve plans to recapitalize banks, make Greek's debt mountain more sustainable and ramp up the firepower of the bloc's EFSF rescue fund.

Efforts by some countries to increase the IMF's ammunition to fight the crisis ran into resistance from the United States and others, burying the idea for now and putting the onus firmly back on Europe.

One G20 source said emerging market policymakers backed injecting some $350 billion into the International Monetary Fund. Treasury Secretary Timothy Geithner and his Canadian counterpart poured cold water on the idea. The IMF's dominant shareholders, including the United States, Japan, Germany and China, are content that the fund's $380 billion worth of resources is enough.

"They (the IMF) have very substantial resources that are uncommitted," Geithner said.

On Friday, German Finance Minister Wolfgang Schaeuble agreed the euro zone debt crisis was for Europe to solve, and expressed confidence that EU leaders would produce a plan at the October 23 summit that would be convincing for financial markets.

The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.

"The first priority here is for Europeans to put their own house in order," Australian finance minister Wayne Swan said, though his office in Canberra later released a transcript of a CNN interview in which he added that the G20 should be willing to support extra IMF resourcing if required.

Canadian Finance Minister Jim Flaherty also said the G20 should keep up pressure on the euro zone on its "arduous" journey toward a solution and not focus on IMF resources.

If minds needed concentrating further, Standard and Poor's cut Spain's long-term credit rating on Friday, citing the country's high unemployment, tightening credit and high private sector debt, highlighting the risk of a much larger economy than Greece coming under threat.

Fears about the damage a default by Greece -- and possibly others -- could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 percent from their 2011 high in May. But they have picked up since the leaders of France and Germany set themselves an end-October deadline for action.

DIVISION

Unlike in 2009 when the G20, which makes up 85 percent of global output, launched coordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe's slow response while Washington and Beijing are sparring over the yuan currency.

The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 percent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.

Yet to be decided is whether that can be achieved with the voluntary participation of the banks.

It should also lay out a system for recapitalising banks and plans to leverage the euro zone's 440 billion euros European Financial Stability Facility to give it more punch.

Schaeuble said European banks should be helped, if necessary, with state means to strengthen their capital.

Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain.

The most effective method would be to turn the EFSF into a bank so it could draw on European Central Bank resources. Both Germany and the ECB are opposed to that so attention has turned to the idea of making the fund more like an insurer.

For example, if the EFSF covered the first 20 percent of losses a bank could suffer in case of a default -- it could multiply its firepower fivefold to over 2 trillion euros.

NO CHANGE ON YUAN, FOREX LANGUAGE

A G20 delegation source said the final communique would contain language on exchange rates that is no harsher than at their last meeting in Washington.

The source also said China had given no indication it was prepared to change pace on greater flexibility of its yuan currency.

Any real progress on bigger goals such as setting parameters to measure global imbalances and reining in speculative capital flows is unlikely to come before a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico.

A French finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses.

A separate G20 source said after preparatory talks late on Thursday that China would commit to boost its consumption through a five-year plan, via households and companies as well as infrastructure.

A communique and round of closing news conferences are expected around 1500 GMT with other decisions set up for a G20 leaders' summit in Cannes on November 3/4.

(Additional reporting by Daniel Flynn, Francesca Landini, Randall Palmer, David Milliken, Kevin Yao and Mark Bendeich in SYDNEY; Writing by Janet McBride/Mike Peacock)