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Facing a political storm over bonuses paid to AIG () employees after the insurance giant was rescued with taxpayer money, U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke said the government could avoid future bailouts if properly empowered.

"AIG highlights the urgent need for new resolution procedures for systemically important non-bank financial firms," Bernanke told a House of Representatives committee.

The Republican opposition immediately accused the White House of "an unprecedented grab of power."

"Before that occurs, there ought to be a real debate about whether we should give that authority to the Treasury secretary," House Minority Leader John Boehner said.

Elsewhere on Capitol Hill, legislation that sought to recover the retention bonuses paid to AIG employees after the company took taxpayer-funded bailouts appeared to loose momentum in the U.S. Senate.

President Barack Obama called on the world's leading economies to enact robust stimulus spending, repair credit markets and extend aid to poor countries when Group of 20 leaders meet in London on April 2.

European leaders have opposed American pleas for more spending on top of the trillions of dollars governments have already pledged, with many arguing the priority was to strengthen market regulation.

"My message is clear: The United States is ready to lead, and we call upon our partners to join us with a sense of urgency and common purpose," Obama wrote in an article published around the world. (here)

U.S. stocks .N retreated after Monday's 7 percent rally, with the Dow Jones industrial average .DJI closing down 1.5 percent and the MSCI World index .MIWD00000PUS down 0.8 percent. European shares .FTEU3 closed 0.2 percent higher after Japan's main share index .N225 gained 3.3 percent.

BUDGET BATTLE

The European Commission warned member states to control ballooning budget deficits that threaten established limits. Economists debated whether Europe needed more stimulus and how quickly it should be rolled out.

Euro zone services and manufacturing indexes rose in March, but analysts warned the economy may see a sharper contraction in the first quarter than the 1.5 percent it shrank in the last three months of 2008.

"The picture is remaining very bleak. They are still pointing to an accelerating pace of contraction in the economy," said Silvio Peruzzo at RBS.

Asian powers were acting to bolster their economies. South Korea vowed to spend nearly $13 billion extra to shield Asia's fourth-largest economy from an almost certain recession and Japan's central bank governor urged banks to improve their capital bases.

British Prime Minister Gordon Brown launched his own diplomatic offensive to win support for his plans to help pull the world out of its worst financial crisis since the 1930s.

Before embarking on his travels to Europe, New York and Latin America, Brown met the chiefs of 13 major banks for talks about capital adequacy, regulatory reform and economic measures, after upbeat comments from Deutsche Bank and Credit Suisse.

Deutsche Bank's () CEO said the bank will return to profit this year if the global economy, financial markets and regulatory environment develop as expected.

Switzerland's Credit Suisse () said 2009 had started well, matching recent guidance from Citigroup (), HSBC () and others, and said it would ask shareholders for the option to raise capital for acquisitions.

(Reporting by Reuters bureaus around the world; Editing by Dan Grebler)