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Sending a message to international lenders increasingly frustrated with delays in reforms and missed fiscal targets, Papandreou said his government was determined to take the difficult decisions and make the sacrifices needed.

"We decided to fight the battle to avoid a disaster for the country and its people and to stay in the euro," he said in his annual economic speech at a trade fair in the northern city of Thessaloniki. "Any delay and wavering is dangerous for the country."

Anger at the country's failure to meet fiscal targets under its EU/IMF bailout has reached boiling point, prompting senior euro zone policymakers to cast doubt on its ability to avoid default or even its membership in the single currency.

The embattled premier, who was heckled by angry labor unions on Friday, said he would redouble efforts to fight endemic tax evasion, a main hurdle in achieving fiscal targets.

His Finance Minister Evangelos Venizelos said earlier Greece may even take additional fiscal measures in 2011 to make up for budget deficit slippage that threatens the disbursement of an 8 billion euro EU/IMF loan tranche.

Venizelos pledged to further cut the civil service payroll, push privatizations and deepen labor market reforms.

Civil servants, who have seen about a fifth of their wages slashed, will suffer more after the government decided to put thousands of them in a so-called "Labor Reserve," in which they will draw 60 percent of their salary and possibly face dismissal if they find no other public sector job within a year.

But austerity measures are throwing the economy into an ever deeper recession. GDP will shrink by more than 5 percent this year, Venizelos said, topping earlier projections in its third straight year of contraction.

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More than 20,000 protesters gathered in the northern city to mark Papandreou's speech. Police fired tear gas at youths smashing shop windows and setting fires on the main shopping streets. Police said 106 people were detained.

Demonstrations were organized by civil servants, students, taxi drivers and even football fans. Some restaurants in the city shut down to protest a VAT hike that took effect earlier this month.

"We are suffering an unprecedented tax raid ... we deeply worry about tomorrow," George Kasimatis, chairman of Greece's Chamber of Commerce Federation, told Venizelos during the conference.

About 7,000 police were patrolling the city's streets, cordoning off the fairgrounds. Ministers canceled plans for their usual walkabouts in the city and Papandreou avoided touring the fair in the morning, as prime ministers traditionally do on the event's first day.

While vowing to keep its side of the bargain, the Greek government sharply criticized its EU partners for delaying ratification of a second, 109-billion-euro bailout for the country, agreed by euro zone leaders on July 21.

"Europe must rise to the challenge and move toward implementing the July 21 decisions, to put an end to the Sisyphean ordeal the Greek people is going through," said Development Minister Mihalis Chrysohoidis.

"Doing nothing is disastrous for all of us," he added.

A G7 source said the troika (EU/IMF/ECB), which suspended talks with Athens last week in frustration at Greece's struggle to stick to its deficit reduction plan, would probably come up with a form of words in its next report to allow the next tranche of bailout funds to be paid.

But the working assumption is that Greece will not avoid default indefinitely.

However, a bond swap plan for private bondholders, which is part of the second bailout plan and is supposed to ease Greece's debt payments was progressing well, Venizelos said.

"The private sector is responding very well to the PSI (private sector involvement)," he said, without elaborating, one day after an initial deadline for banks to express interest in the scheme expired.

(Additional reporting by George Georgiopoulos and Yannis Behrakis; Writing by Dina Kyriakidou; Editing by Janet Lawrence)

More volatility is almost guaranteed after the top German official at the European Central bank quit and rumors circulated throughout global markets that Greece will default this weekend. Greece later called the rumor market speculation designed to hurt the euro.

Recent market trading patterns and options activity also suggest August's roller-coaster ride will keep apace throughout September.

Juergen Stark's sudden resignation from the ECB on Friday came after a conflict over the bank's policy of buying government bonds to combat the euro zone's debt crisis, raising questions about a program that has been a key market stabilizer in recent months.

"You can tie our stock market directly to European banks -- the problem they have is sovereign debt exposure," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

In a light week for earnings with only electronics retailer Best Buy Co Inc and diversified manufacturer Pall Corp among S&P 500 companies set to report, investors will eye a batch of data for any clues the economy has regained its footing. Economic readings over the past two months have left little reason for optimism.

But the euro zone, where a two-year sovereign debt crisis has unsettled investors worldwide, will be the real focus.

De Gan noted the ECB's critical role in potentially solving the sovereign debt issue, highlighting the implications for global markets on any reports of internal turmoil.

"Europe matters right now -- the ECB resignation, Trichet's keeping rates flat as opposed to outright cutting them," said Phil Orlando, chief equity market strategist, at Federated Investors, in New York. "There are rumors I can't substantiate, but the rumors are still out there that this is the weekend Greece goes bust.

"So certainly, Europe is going to capture our attention," Orlando said.

Data on tap for next week includes retail sales along with the consumer price and producer price indexes for August. Also expected are regional manufacturing surveys by the Philadelphia Federal Reserve Bank and by the New York Federal Reserve Bank, both of which showed contractions in factory activity last month.

"Each bit of this data theoretically gets us down the road to understanding what the true state of the economy is. I expect overreaction to rule the day," said Kim Caughey Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

At the same time, the benchmark S&P 500 has been mired in a range of about 100 points -- between 1,120 and 1,220 -- for the past month, leaving the market susceptible to wide swings on a daily basis.

"We are just kind of in this nowhere zone," said Ken Polcari, managing director at ICAP Equities New York.

"We haven't broken through to the downside but nor have we broken it to the upside. So what you are going to continue to get is this erratic movement in the market until at some point, it's going to have break out one way or the other."

The continued rise in the CBOE Volatility index also points to large moves in the market. The index rose nearly 20 percent to top the 40 level for the first time since August 26, indicating a rise in investor skittishness.

"I expect high volatility next week, big swings to the upside and downside. The VIX is quite high and pretty elevated," said Randy Frederick, director of trading and derivatives at Charles Schwab & Co in Austin, Texas.

"When the VIX is rising the way it is, that generally means the puts are going up too."

(Additional reporting by Angela Moon and Rodrigo Campos; Editing by Leslie Adler)

China's exports rose 24.5 percent in August from a year earlier, accelerating from the 20.4 percent rise in July, the customs administration said on Saturday.

The export growth was stronger than expectations of 21.6 percent.

But month-on-month figures showed exports cooled a bit in August, when debt worries in the United States and Europe fanned fears of a renewed global downturn. In U.S. dollar terms, China's exports totaled $173 billion in August, down from July's record high of $175 billion.

Imports grew 30.2 percent in August over a year earlier, overshooting expectations for 21.5 percent. Robust imports should comfort investors looking to China to pick up some slack in global demand as other major economies sputter.

That left the country with a trade surplus of $17.8 billion

in August, down 43 percent from in July, when the surplus was $31.5 billion. Economists had expected a surplus of $25.1 billion for August.

"The European debt crisis and slowing U.S. growth will be reflected in China's export data in the next few months. I expect Chinese export growth to be below 10 percent in the fourth quarter," said Shen Jianguang, an economist with Mizuho Securities Asia in Hong Kong

"Strong import growth is driven by China's strong demand for consumer goods, luxury items, iron ore, crude oil, soy as well as corn," he said.

Despite the quickening pace in August, China's export growth has slowed from the 37.7 percent pace in January, suggesting China's economy is not immune to global headwinds.

Chinese exporters have tried to expand their market shares in developed economies and diversify into fast-growing emerging markets, though they face increased challenges from rising costs and a firmer yuan.

North America and Europe have generated less than 40 of China's overseas sales this year, down from 55 percent in 2002, according to analysts at Macquarie.

The narrower trade surplus will help China's fight against inflation, Huang Guohua, an official at the customs agency, told state television.

Data on Friday showed China's inflation pulled back in August from a three-year high while economic activity slowed, underlining expectations that the central bank can hold off on further tightening of monetary policy in the face of a global economic slowdown.

(Reporting by Langi Chiang and Kevin Yao; Editing by Emily Kaiser)

The resignation of Juergen Stark from the ECB throws into question policymakers' ability to deal with Europe's debt crisis, a problem that could engulf a world economy already teetering on the brink of recession.

Investors' rising fears were highlighted by a 12 percent jump in the market's main measure of expected turbulence, the VIX volatility index .VIX. The VIX neared 40, close to its highest level this year, as it marked its biggest jump in three weeks.

"Stark's resignation is suggesting that there is a lot of pressure being built in the senior levels in the ECB," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. "There is an increasing realization that this is a major solvency issue in the banking system."

Doubts about President Barack Obama's $447 billion stimulus proposal added to the negative sentiment, with investors unconvinced his administration has the tools to revive the flagging U.S. economy.

The sell-off was broad and on solid volume. All 10 S&P sectors were in the red and more than 80 percent of stocks listed on the New York Stock Exchange fell. There were 8.7 billion shares traded on the NYSE, the Nasdaq and the Amex, above the exchanges' 20-day moving average.

Unnerving traders further were unconfirmed terrorism threats against New York City and Washington just ahead of the 10th anniversary of the September 11 attacks.

"There is an extreme amount of negativity," said Sam Ginzburg, a senior trader at First New York Securities.

"In talking to the sell-side desks that we do business with, they're not telling me that there are long-onlys adding to or initiating positions right now," he said.

The Dow Jones industrial average .DJI dropped 303.68 points, or 2.69 percent, to 10,992.13. The Standard & Poor's 500 Index .SPX dropped 31.67 points, or 2.67 percent, to 1,154.23. The Nasdaq Composite Index .IXIC dropped 61.15 points, or 2.42 percent, to 2,467.99.

The ECB has been buying up sovereign bonds to help hold down borrowing costs in some debt-strapped euro zone members, and the program has been considered critical to arresting market contagion. The resignation of Stark, who will step down by the end of the year, may deepen the gulf between the ECB and German guardians of central banking orthodoxy.

At a meeting of finance chiefs from the Group of Seven wealthy nations being held in France, U.S. Treasury Secretary Timothy Geithner on Friday pressed Europe's strongest economies to give "unequivocal" financial support to weaker euro zone states to overcome a debt crisis that threatens the world economy.

The S&P 500 ended the week 1.7 percent lower and is now down 8.2 percent this year.

Shares of some big companies fell after Obama's speech did not address proposals to allow large, multinational companies to repatriate an estimated $1.5 trillion of overseas profits to the United States at a reduced tax rate.

"These are software companies, pharma companies that have billions of dollars stranded overseas," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It's a disappointment that we didn't see a definitive package on bringing those profits back home."

Among stocks that would benefit from such a move, Xerox Corp (XRX.N) fell 5.5 percent to $7.41 and Hewlett Packard (HPQ.N) fell 5.1 percent to $22.65.

Bank of America Corp (BAC.N) officials discussed slashing roughly 40,000 jobs during the first wave of a restructuring, The Wall Street Journal said, citing people familiar with the plans. The shares slid 3.1 percent to $6.98.

McDonald's Corp (MCD.N) fell 4.1 percent to $84.02. The world's largest hamburger chain reported a lower-than-expected rise in worldwide August sales at established restaurants on a steep drop in Japan and a lull in new product launches in the United States.

(Editing by Leslie Adler)