Growing prospects of a ECB interest rate cut takes some of tension out of discussions on how to tackle global economic downturn when finance leaders from leading industrial economies meet today.

Group of Seven finance ministers and central bank governors are in Tokyo for meetings to discuss ways to cope with deteriorating economic growth and market turmoil. They are expected to deliver no new message on exchange rates.

After aggressive US rate cuts and the passing of a $150 billion fiscal package, a market focus was whether the rest of G7 club could follow suit to ease fears of a worldwide slump.

Europeans, which has been saying the region's economy is in better shape than the world's largest economy, have no plans and cannot afford to spend more and have been wary about inflationary pressure, prompting tensions over the need for a global response.

But after ECB President Jean-Claude Trichet dropped a threat to act pre-emptively against inflation and stressed risks to the economy, markets now see more scope for ECB rate cuts this year.

The ECB left interest rates on hold on Thursday.

It is "a change that goes in the right direction", a G7 government official said of Trichet's comments.

A draft of the communique to be issued after Saturday's gathering of G7 - Britain, Canada, France, Germany, Italy and Japan and the US - says the global economy is facing "a more challenging and uncertain environment" than at the time of the group's last meeting in October.

But the draft, read to Reuters by another source on Thursday, added that global economic fundamentals remained "solid".

Ahead of the Tokyo meeting, the IMF cut its global economic growth forecast to a five-year low of 4.1 per cent for this year, down from an initial estimate of 4.4 per cent.

"It is true that economic sentiment is worsening in both the US and Europe," said Susumu Kato, chief economist at Calyon Securities in Japan.

"I think the ECB will cut rates by the middle of this year."

A Reuters poll showed most economists still expect a 25 basis point ECB cut to 3.75 per cent by June, unchanged from last week, but analysts brought forward the timing of a second cut to the third quarter from the fourth.

In addition to the Federal Reserve's 125 basis points cut in two weeks in January, the Bank of England lowered interest rates for the second time in three months on Thursday, underscoring worries about a worldwide economic slowdown.

Still, the G7 meeting is unlikely to see any announcement on coordinated monetary easing or other stimulus measures, as different economic problems and policy priorities weigh on the group of the world's rich nations.

Whether the emerging economies can come through the US shakeout relatively unscathed will be on the agenda when G7 officials meet with finance ministers of China, Indonesia, South Korea and Russia for dinner today.

The head of the Asian Development Bank, Haruhiko Kuroda, said yesterday fiscal stimulus could be an option for emerging Asian economies if global growth slows further but the main concern for now is to contain inflation.

While focusing on fallout from the US slowdown and market jitters, the G7 club is unlikely to single out foreign exchange rates this weekend.

"Exchange rates will be less important this time than discussions on the economic climate and responses to the crisis," the first G7 source, speaking to reporters in Tokyo, said.

In October the finance ministers stressed the need for an accelerated appreciation of the Chinese yuan while repeating that excess volatility and disorderly movements in exchange rates are undesirable for economic growth.

Europeans are concerned about the euro's rise after the Fed's big rate cuts and resist the idea that the euro alone is shouldering the burden of adjustments in global imbalances.

Europe's largest business organisation called on G7 finance leaders' to show a clear commitment against further euro appreciation.

"Compared to the outcome of the G7 last October, when they addressed only China - it is not only China which is a problem. Others are also a problem," Philippe de Buck, BusinessEurope secretary-general, told Reuters in an interview.