DAVOS - BUSINESS leaders called for more leadership to head off an economic downturn on Wednesday, with some saying an emergency US interest rate cut may have been over hasty and could fuel a new market bubble.

Markets cautiously welcomed the dramatic move by the Federal Reserve on Tuesday, but business leaders gathering in the Swiss ski resort in Davos for the annual meeting of the World Economic Forum called for stronger leadership on a global level.

'The thing that markets are desperate for right now is leadership - whether globally or regionally - and it seems this is lacking,' Mr John Studzinski, head of US private equity firm Blackstone's advisory business, told Reuters.

Business and political leaders begin meeting in Davos on Wednesday facing what many fear could be the biggest financial crisis since World War Two.

The emergency US interest rate cut on Tuesday, after two days of plummeting stock prices, set the tone for the WEF annual meeting where financial, industrial and political figures, including US Secretary of State Condoleezza Rice, are awaited.

Mr Stephen Roach, head of Asia for US investment bank Morgan Stanley, said the Fed may have let itself be goaded into action by a market panic.

'We have a market-friendly Fed possibly injecting a lot of liquidity in the system which will set us up for another bubble economy,' Mr Roach told Reuters.

'I'm sort of worried that all they did yesterday was to hit the snooze button,' he said. '(This is) excessive monetary accommodation that just takes us from bubble to bubble to bubble.'

Realism, Reaction

Dr Rice is set to give the opening address at Davos later in the day, focusing on what she refers to as 'American realism' in the world.

Dr Rice will also be meeting Pakistan President Pervez Musharraf as well as separately with Afghan President Hamid Karzai on the sidelines of the Alpine forum.

It will be Dr Rice's first encounter with Mr Musharraf since the assassination last month of opposition politician Benazir Bhutto, which plunged the nuclear-armed country, a key ally in the US war against Al- Qaeda, into crisis.

DrRice told reporters travelling with her she would stress the need for Pakistan's Feb 18 elections to be free and fair and for a strong move to democratic reforms but she also made clear she would underline Washington's commitment to Pakistan as an ally in the fight against terrorism.

During her brief stop in Switzerland, Dr Rice will also meet Ukrainian President Viktor Yushchenko and Swiss leaders.

On the economic front, policymakers accustomed to apres-ski fireside chats will this year confront a banking crisis and a widely forecast recession, with policy differences between the United States and Europe at the fore.

The Fed's unilateral action on Tuesday, when it cut rates by 75 basis points, was its biggest emergency cut in two decades.

It will either put pressure on the European Central Bank to relax its view against cutting rates and coordinate a response, or admit a policy rift between Europe and the United States.

Worries are intensifying that fallout from the credit crisis - which began in earnest in August when problems in the US subprime mortgage sector led to a seizure in interbank lending - will be felt in all corners of the globe.

ECB President Jean-Claude Trichet and ECB council member, Bundesbank President Axel Weber- also due in Davos - will face questions whether they intend to follow suit.

European policymakers have held a harder line than those in the United States, pointing rather to inflationary dangers than those to growth, despite pressure to relax their stance.

Several policymakers have dropped out of the Davos event over the past week due to intense domestic demands.

US Treasury Secretary Henry Paulson and British finance minister Alistair Darling have both withdrawn at short notice. -- REUTERS