By Matt Falloon

LONDON (Reuters) - Governments must act together to bandage up the global economy and prevent another credit crisis from infecting markets, top financial officials said on Monday, ahead of key talks between powerful economies this week.

The G7 group of industrialized nations meets in Washington on Friday under heavy pressure to finally come up with some solutions to months of financial market turmoil that have raised the specter of a worldwide economic downturn.

Presidents, prime ministers and finance ministers have been calling for a co-ordinated battle plan to stop the contagion, but so far details are sketchy and the practicalities of acting as one could also make it tricky turning words into action.

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"The need for public intervention is becoming more evident," International Monetary Fund chief Dominique Strauss-Kahn said in an interview with the Financial Times newspaper. "The crisis is global."

Tighter, integrated regulations and more openness among banks are now seen as the best fix for the credit crunch rather than further co-ordinated central bank action and economic life support measures from governments.

Central banks have poured extra cash into the financial system and the U.S. Federal Reserve has slashed interest rates, but analysts argue while such moves might soothe nerves in the short term, they cannot repair damaged trust in markets.

G7 PRESSURE

The current crisis was triggered by a raft of defaults on U.S. mortgages and then gained momentum as investors lost confidence in the value of exotic, secondary credit investment instruments and the banks that conjured them up.

The rates at which banks lend money to each other have in turn soared because of fears about what toxic debt may be lurking on balance sheets.

But policymakers are wary of being seen to rescue investors and financial institutions from a mire of their own making.

Malcolm Knight, general manager at the Bank for International Settlements, said there was no clear need for the world's central banks to take joint action to purchase securities hit especially badly by the subprime crisis.

"This is an aspect of liquidity provision where I'm not sure I see a necessity of lock-step coordination among central banks," he was quoted as saying in the Wall Street Journal. "It depends on what's happening in each country's own markets."

Knight said banks must see that it is in their own interests to have consistent rules of engagement across territories.

He said that if policymakers appeared to bail out the very high levels of risk taking and leverage seen in the last five years, "they would be inadvertently building the underpinnings for another crisis five or 10 years hence."

Europe has already said it will press the G7 to demand more disclosure from banks on their investments as the credit crunch begins to be felt in households and businesses outside of the hard-hit financial sector.

"The problems in financial markets have intensified and spread globally to create one of the strongest financial shocks for decades," British finance minister Alistair Darling said in a letter to fellow G7 delegates.

"Growth in each of our countries is now expected to be lower than when we last met. It is essential that we have a clear and detailed plan of action, with regular reports of progress from national supervisors and international bodies."

(Editing by David Christian-Edwards)