TOPWRAP 3-US works on bank plan, IMF warns of further mkt fall

* U.S. working on plan to buy stakes in banks to end turmoil

* IMF warns markets could shed another 20 percent

* Rich nations vow to fight credit crunch, offer no details

* European leaders to meet Sunday, mull UK-style plan

(Adds euro zone meeting, Germany looking at UK bank plan)

By Emily Kaiser and Mike Peacock

WASHINGTON/LONDON, Oct 11 (Reuters) - The U.S. government pushed on Saturday to finalise a plan to buy direct stakes in American banks as the International Monetary Fund warned markets could drop another 20 percent in a worst-case scenario.

Global stocks plunged to five-year lows on Friday as panic gripped. The U.S. S&P .SPX index and European stocks suffered their worst week ever, losing around a fifth of their value.

"In a worst-case scenario, governments will need a few more weeks to take the correct measures and the markets could fall another 20 percent. Then, we'll turn around," the IMF's chief economist Olivier Blanchard was quoted as saying in Italian daily Corriere della Sera.

The world's rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks can raise money but they offered no collective course of action to avert a deep global recession.

In a surprisingly brief statement after a 3-1/2 hour meeting, the Group of Seven stopped short of backing a British plan to guarantee lending between banks, something many on Wall Street saw as vital to end growing market panic. [ID:nN10398960]

However, an emergency meeting of euro zone leaders on Sunday would discuss a bank rescue package taking Britain's initiative as a reference point, a source close to the French presidency said, even though as a non-euro member Britain would not attend.

Reports say Germany is thinking along the same lines.

Britain's rescue plan, launched last week, involved injecting 50 billion pounds ($86 billion) of taxpayers' money into its banks and, crucially, to underwrite interbank lending which has all but frozen around the globe.

Treasury Secretary Henry Paulson said the U.S. government would buy shares of financial institutions if necessary to halt market turmoil that has wiped out trillions of dollars of wealth and threatens to throw the global economy into major recession.

"We're going to do it as we can do it in a proper way that will be effective. Trust me, we're not wasting time, we're working around the clock," Paulson said late on Friday after the G7 meeting broke up.  Continued...