With the twin debt crises raging and stock markets plunging, the Group of Seven leaders said after a telephone consultation that they intend to stay in close contact and were "ready to take action to ensure stability and liquidity in financial markets."

The G7 - the United States, Britain, Canada, France, Germany, Italy and Japan - said that included joint action if needed in foreign exchange markets because "disorderly movements ... have adverse effects for economic and financial stability."

The statement was designed to calm financial markets and followed a signal from the European Central Bank that it would buy up Italian and Spanish bonds. Market analysts said it should provide some reassurance as trading resumes on Monday.

"The G7 has effectively drawn a line in the sand on contagion," said Christian Cooper head of US dollar derivatives rating at Jefferies & Co in New York.

The G7 meeting followed Friday's downgrading of US debt quality by rating agency Standard & Poor's and a week in which a European debt crisis threatened to engulf larger nations as Italy's borrowing costs shot higher.