Sarkozy seeks to limit European crisis fallout

By Anna Willard

PARIS (Reuters) - President Nicolas Sarkozy sought to limit contagion from the United States' financial crisis on Tuesday, overseeing a major French corporate rescue deal and preparations for a summit to forge a European response.

Sarkozy joined a 5 a.m meeting to help seal a joint 6.4 billion euro (5.06 billion pounds) deal with Belgium and Luxembourg to save Belgian-French financial services group Dexia from a credit crisis that has spread from U.S. banks to Europe.

"There is no reason to be frightened and to give in to panic," Bank of France Governor Christian Noyer told RTL radio as officials moved to dampen fears following the rejection in Congress of a U.S. bailout plan.

Representing the European Union presidency, Sarkozy has taken on a prominent role in tackling the growing financial crisis, just as he played a central part in ending a conflict between Russia and Georgia in August. The president's popularity on the domestic stage has been low in recent months.

Last week, Sarkozy denounced what he called the excesses of the free market system -- a reference to risky investment practices that brought the fall of U.S. firms such as Lehman Brothers -- and vowed to protect depositors from any losses due to problems at French banks.

On Tuesday, Sarkozy met the heads of some of France's biggest banks and insurers to discuss the crisis before doing the same with employers group BusinessEurope later in the day.

Sarkozy told European employers he would channel all of his energies towards organising a coordinated response to the crisis on both a European and global level, according to a statement released by the presidential office.

The meetings took on added urgency after the dawn rescue of Dexia, the world's largest lender to municipalities and an important contributor to French local authority financing.