IMF chief calls for 'political clarity' in Greece, Italy

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The head of the International Monetary Fund called on Thursday for greater 'political clarity' in Greece and Italy, after talks with Chinese leaders dominated by Europe's worsening debt crisis.

Lagarde, who is on a two-day visit to China, also said emerging economies had a role to play in resolving the debt woes threatening the global economy, calling on them to allow their currencies to appreciate.

"Emerging markets, and large emerging markets in particular, have a role to play either by reengineering their growth model or by letting their currencies appreciate appropriately," Lagarde told journalists in Beijing.

Asian stock markets slumped on Thursday after Wall Street suffered a pummelling, as Italy became the latest European country to suffer a huge surge in borrowing costs.

"Political clarity is conducive to more stability, and my objective is better and more stability," said Lagarde, referring to the political dramas that have engulfed the governments of Greece and Italy.

The IMF chief will hold talks later today with China's Premier Wen Jiabao against a backdrop of worsening economic turmoil in Europe that has rattled financial markets around the world.

She also met with the head of China's central bank on Wednesday, weeks after the chief of the European bailout fund travelled to Beijing to try to persuade China's leaders to contribute.

Lagarde's visit to China comes amid mounting concerns over the debt crisis facing the eurozone.

On Wednesday, she warned that Asian economies were not immune to the crisis, saying the world risked a 'downward spiral' if it did not pull together to tackle the problem.

China has the world's largest foreign exchange reserves at USD 3.2 trillion, but has so far made no firm commitment to provide financial assistance for the eurozone.

Europe has been discussing establishing a special purpose investment vehicle to persuade China and other potential contributors to sign up, and is exploring the possibility of linking it to the IMF.

Lagarde visited Moscow before heading to China, and on Wednesday the Russian government said it was not prepared to invest directly in the EU rescue fund and would prefer to help the eurozone through the IMF.

Any move to help developed European countries out of the current crisis would be a hard sell for the leaders of China, where millions of people still live in poverty, and inflation and housing costs are straining household budgets.