AFP, WASHINGTON - The Group of Seven has warned the global economy is sputtering and vigorously backed measures to prevent a recurrence of what is being called the worst financial crisis in seven decades.

The world economy "continues to face a difficult period ... (and) near-term economic prospects have weakened," the G7 officials said in a statement after their meeting here.

The finance chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States stared into the abyss of a complex crisis that began in the US subprime home-loan market in August and has spread into a global credit squeeze draining world growth.

"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," they said ahead of the weekend meetings here of the board of governors of the International Monetary Fund and World Bank.

Mark Weisbrot, an economist and co-director of the Center for Economic and Policy Research in Washington, said "it is very positive that the G7 recognized this ... I think that is about right."

The ministers cited among the risks the ongoing weakness in US residential housing markets, stressed global financial market conditions, the international impact of high oil and commodity prices, and consequent inflation pressures.

The G7 finance chiefs also noted that since their last meeting in February, there have been "sharp fluctuations" in major currencies and members "continue to monitor exchange markets closely and cooperate as appropriate."

Major central banks have coordinated multi-billion dollar cash injections into stressed financial markets in recent months and the dollar has plunged to record lows.

In response to the spreading crisis, they said they approved a Financial Stability Forum (FSF) report on ways to prevent a repetition and had identified several recommendations for implementation "within the next 100 days." "Rapid implementation of the FSF report will not only enhance the resilience of the global financial system for the longer term but should help to support confidence and improve the functioning of the markets," they said.

Ranked first, "firms should fully and promptly disclose their risk exposures, write-downs, and fair value estimates for complex and illiquid instruments. "We strongly encourage financial institutions to make robust risk disclosures in their upcoming mid-year reporting consistent with leading disclosure practices as set out in the FSF's report."

Among other measures for early implementation, the G7 said the International Accounting Standards Board (IASB) and standard-setters should "initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities." It should also enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.

Off-balance sheet entities have been blamed for concealing the true extent of the banks' exposure to the US high-risk subprime mortgage crisis and the risks involved in assets that could not be fairly valued in times of distress. In its report, the FSF said watchdogs around the world should improve their "responsiveness to risks," and "robust arrangements" should be put in place to deal with stress in the global financial system.

"To restore confidence in the soundness of markets and institutions, it is essential that steps are taken now to enhance the resilience of the global system," the FSF urged. The G7 ministers reaffirmed "our strong commitment to continue working closely together to restore sustained growth, maintain price stability, and ensure the smooth and orderly functioning of our financial systems."

US Treasury Secretary Henry Paulson, his country at the epicenter of the crisis, said: "We have worked, and will continue to work, closely to address global challenges and take concrete actions."

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