TOYAKO: The ailing global economy took centre stage as eight of the world's most powerful leaders met Tuesday to discuss ways to wrestle down skyrocketing oil and food prices.

G8 nations were also locked in separate tough negotiations on tackling climate change as officials voiced optimism there could be progress, with Washington under pressure to agree for the first time to binding targets.

The threat from inflation, which has led to protests worldwide, has become the top economic concern for the Group of Eight rich nations, whose leaders huddled for a second day in this Japanese spa resort under tight security.

The surge in oil prices is "one of the most important issues at this summit," said a Japanese foreign ministry official. "Leaders are expected to show their concerns and voice the need for concerted action by the G8."

But with most major oil producers absent from the talks, it was unclear what steps the leaders of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States would be able to take to rein in surging crude costs.

The weakness of the dollar was also expected to be on the agenda for the G8, who met in a plush hotel in northern Japan, guarded by thousands of police who have blocked protesters from getting near the summit venue.

But with central bank chiefs absent, currency markets are sceptical that the talks will yield any coordinated steps to stem the weakness of the dollar, which analysts say is contributing to the rise in world oil prices.

"It's not so clear what you would do to change the value of the dollar other than potentially increasing interest rates," which could slow economic growth, World Bank President Robert Zoellick said on the sidelines of the summit.

"The United States has stated that it would like to seek a stabilised and strong dollar, but these are really determined in international markets by buyers and sellers of the currency," Zoellick said.

Oil prices struck record peaks above US$146 last week, up five-fold since 2003 amid supply worries and rising demand in emerging economies.

The higher cost of fuel and food has led to protests worldwide, from tens of thousands of truck drivers striking in Spain and Portugal to street rallies in Asia and riots in Egypt and Haiti.

A system of food reserves much like emergency oil stockpiles was one idea on the G8 table.

Leaders were also expected to discuss stalled global free trade talks and the role of investors in driving up oil prices, although some countries such as the United States have warned against pinning the blame on speculators.

On climate change, there were signs that the talks might be inching forward after negotiators huddled late into the night in search of common ground.

German Chancellor Angela Merkel, speaking with reporters after one-on-one talks with Bush, said without elaborating that she was "very satisfied" on the G8 summit's work so far on climate change.

US President George W. Bush, taking part in what will likely be his last international meeting focused on global warming, has insisted that developing nations take action before the world's largest economy makes commitments.

A senior European Union official said on condition of anonymity that 95 per cent of the text has been decided.

"We are optimistic about it," the official said.

Environmentalists said the leaders were discussing a proposal for each G8 economy to agree to set binding targets on emission cuts for the period after the Kyoto Protocol's obligations expire in 2012.

While there would be no figures and each country would set its own targets, it would be the first time that the United States would agree to internationally binding cuts on climate change.

UN Secretary General Ban Ki-moon called on the G8 to make good on its three-year-old promise to double aid to Africa to US$50 billion by 2010, warning the oil and food crisis was hitting the world's poorest people hardest.

Ban on Monday attended a special session on Africa with the G8 leaders and seven African heads of state and government, who urged the rich countries to make good on the pledge.

- AFP/yb