CALGARY, Alberta, June 26 (Reuters) - The world's most powerful leaders, meeting behind a tight security cordon in a Canadian mountain resort, offered hope for the world economy on Wednesday even as stock markets faltered on a new U.S. accounting mess.
Italian Prime Minister Silvio Berlusconi, host of last year's violence-hit summit of the Group of Eight industrialized nations, said things were looking up for economies that took a tumble after the Sept. 11 suicide hijackings in the United States.
"I do not have a pessimistic vision of the future," he told reporters in Kananaskis, where the G8 leaders posed for snapshots in bright sunshine, against the backdrop of towering, snow-covered peaks.
"Indeed, I think that in the second part of this year we will see the growth process that many indicators are already pointing to."
Economic issues are just one item on a packed agenda for the G8 leaders in two days of talks in the Rocky Mountain retreat.
But they took on new significance on Wednesday as markets stumbled in response to news that long distance carrier WorldCom Inc. had improperly boosted its profits in a $3.8 billion accounting scandal.
The tech-heavy Nasdaq stock index slumped to a 3-1/2 year low and the U.S. dollar fell. President Bush said he was "mad as hell" about the lack of corporate responsibility in America, and promised a full investigation.
TANKS AND MISSILES
In the most extensive security operation Canada has ever staged, Kananaskis is being protected by tanks, laser-guided anti-aircraft missiles and an army of police and security officials who are watching both for threats of terrorism and demonstrations from anti-globalization activists who say rich country policies hurt the poor.
The G8 -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- will also discuss joint efforts to curb terrorism, aid for Africa and Bush's controversial U.S. peace proposal for the Middle East -- an idea that is working its way inexorably up the agenda.
The Bush plan seeks a new Palestinian leadership, democratic reforms and a security deal that Israel can trust. But other G8 countries have already expressed deep reservations about the plan, not least because it is so unclear who would be voted into power in a free and fair election there.
"It is up to the Palestinian people to chose their representative," French President Jacques Chirac told a short news conference.
Bush on Wednesday threatened to cut off money to the Palestinians if they failed to embrace reform.
"I've got confidence in the Palestinians, when they understand fully what we're saying, that they'll make the right decisions," said Bush. But he warned: "I can assure you, we won't be putting money into a society which is not transparent and corrupt, and I suspect other countries won't either."
This year's summit host, Canadian Prime Minister Jean Chretien, held the meeting for Kananaskis to avoid the violent protests that dogged previous international gatherings.
Demonstrators, barred from the area around Kananaskis, marched in Calgary, some 90 km (55 miles away) and in a rain-drenched Canadian capital, Ottawa, but there was little sign of trouble beyond traffic jams and angry commuters.
A "die-in" in a Calgary city park looked more like a mass sun-bathing session than a serious protest.
Activists are angry that the G8 leaders will be making decisions about key issues such as development, trade and the economy without input from ordinary people.
Chretien, as chairman, has steered the official agenda for the Kananaskis summit toward aid for Africa, and several African leaders arrived in Calgary on Wednesday, ready to join the second day of the talks.
Canadian officials said French President Jacques Chirac supports an initiative by Chretien for at least half of new foreign aid to go to Africa, although Japan insists that it cannot afford to give more cash for aid.
Bush is also likely to find himself under pressure at the summit for policies on trade after he slapped tariffs on steel imports earlier this year and boosted agricultural subsidies.
Access to Kananaskis was closed to all but authorized traffic; the air space above was closed, and even the local grizzly bears were fitted with radio transmitters to avoid any nasty surprises for the troops on guard.
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