While policy makers and bondholders were converging on a 50 percent writedown of Greek debt, clashes over collateral to underpin the transaction will limit the summit to issuing a mandate for further talks, the EU official said in Brussels today on condition of anonymity.

European leaders convened for the second summit in four days — and the 14th in 21 months — amid mounting global exasperation over their failure to extinguish the two-year-old crisis that now threatens to ravage Italy and France and brake the world economy.

Stocks Gain

U.S. stocks gained and the euro erased declines on hopes for progress. The Standard & Poor's 500 Index added 0.9 percent at 3 p.m. in New York. The euro was little changed at $1.3906.

The outlines of a deal to safeguard banks emerged, centering on a June 30, 2012 deadline for lenders to reach core capital reserves of 9 percent after writing down their sovereign debt holdings, according to a statement after all 27 EU leaders met.

Banks below that target would face “constraints” on paying dividends and awarding bonuses. The leaders showed little appetite for an EU-run plan, bowing to German calls to make European money available only as a last resort.

Details need to be worked out by EU finance ministers, EU President Herman Van Rompuy said in a statement without announcing when that will be done.

'Full Package'

The bank-aid program “will only go ahead when the other parts of a full package go ahead and further progress on that needs to happen tonight,” U.K. Prime Minister David Cameron told reporters after he left and the heads of euro states continued their deliberations.

Dramas played out across Europe during the day, with Merkel winning a German parliament mandate to negotiate on the rescue fund, Italian Prime Minister Silvio Berlusconi hustling to prepare new budget cuts and EU representatives jousting with banks over the costs of reviving Greece.

“There is a fatigue on financial markets listening to politicians always coming up with the ultimate, final plan,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview with Francine Lacqua on Bloomberg Television.

Euro leaders won't rule out a forced Greek writedown, while continuing to pursue a “voluntary” solution that would scale up a July accord that foresaw 21 percent losses for bondholders, the EU official said.

Bank Lobbying

The Institute of International Finance, which lobbies on behalf of 450 financial firms, sweetened its offer yesterday, proposing to go beyond the 40 percent losses it mooted last week, said two people with knowledge of the talks.

Leaders weighed two options for extending the reach of the fund: using it to insure bond sales and to finance a special investment vehicle that would court outside money, including from the International Monetary Fund.

Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing, said a person familiar with the matter.

While markets clamor for a signal that the euro area will devote 1 trillion euros or more to combating the crisis, the EU won't be able to produce a number until late November, the EU official said.

To shore up confidence in Italy, Berlusconi came to Brussels with a promise to adopt growth-boosting steps such as increasing the retirement age in stages to 67 by 2026, selling 5 billion euros of state assets over three years and easing labor laws.

ECB Pressure

Italy was under pressure to deliver the reforms to provide a rationale for the European Central Bank to continue supporting the Italian bond market. Italy's Mario Draghi, set to become ECB president on Nov. 1, said earlier in Rome that the steps are “very important” and “need to be done swiftly.”

The cracks in Berlusconi's coalition widened, preventing him from delivering the comprehensive plan to boost growth and trim the debt load. Newspaper la Repubblica reported that the embattled leader hatched a secret deal to resign in January and hold early elections.

“Either this government is able to take structural reforms or we need another government,” Mario Baldassarri, chairman of the Senate Finance Committee and a former Berlusconi ally, said in an interview in Rome. “We will see in the next few days or week” whether Berlusconi resigns.

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