* SNB calls for power to break up big banks
* EU to discuss financial regulation
* Obama urges biggest financial reforms since 1930s
* Japan manufacturers less gloomy - Reuters Tankan
* European shares steady; Asian shares fall
By Sven Egenter and Sumeet Desai
ZURICH/LONDON, June 18 (Reuters) - The Swiss central bank called on Thursday for powers to break up banks deemed "too big to fail", joining London and Washington in demanding regulation to ensure institutions look after themselves in any crisis.
Over the nearly two years since defaults on U.S. mortgages triggered a banking crisis that spread across the globe, governments have poured trillions of dollars into the financial system to prop up banks and safeguard people's savings.
The Swiss National Bank said in its stability report that Switzerland might have to create rules to split off parts of its dominant banks, UBS and Credit Suisse if the economy worsened. The two hold over $3 trillion in liabilities -- about six times Swiss gross domestic product.
"One should examine the extent to which, in a crisis, those big bank units that are economically important for the Swiss economy can be split off and possibly transferred to other banks within the country and the rest wound down," it said.
Otherwise Switzerland was more exposed to risks from its banks than almost any other country.
The debate over financial regulation has pitted nations against each other but also central bankers against politicians, who do not want to drive bankers from their countries but want to appease anger over taxes being paid to save their jobs.
BRITAIN ROW
In Britain, Bank of England Governor Mervyn King said on Wednesday that banks considered too big to fail may be larger than regulators should allow -- a point swiftly played down by British finance minister, Alistair Darling.
"If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big," King said in the text of his remarks to the annual Mansion House speech to City of London Financiers.
Darling instead said the fix was to be tackled system-wide, pushing for more transparency, stronger national and international regulation, better means of dealing with failures and a greater focus on system-wide risks.
Washington has forced banks to boost their capital cushions to ensure they could weather any future economic downturn, instituting "stress tests". On Wednesday, U.S. President Barack Obama laid out his vision for recrafting regulation.
"We are called upon to recognise that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our actions," Obama said.
European Union leaders will also approve new rules to tighten supervision at a two-day summit starting on Thursday, to safeguard an economy that they said was deep in recession.
"Much valuable work to mitigate the consequences of the crisis has already been carried out, but it is crucial to keep up efforts," Czech Prime Minister Jan Fischer, whose country holds the EU presidency until the end of this month, wrote in an invitation letter to leaders.
POOR DATA
Consumer sentiment in Europe has risen in recent months, but industrial data and company results have shown the depth of the recession ushered in by the financial crisis.
In Britain, retail sales fell in May, driven by falls in clothing and footwear, the Office for National Statistics said. Public borrowing reached a record high.
A business group predicted the British economy would contract by 3.8 percent this year and make only a muted recovery in 2010.
Italian exports and imports fell in April and the Swedish unemployment rate increased to 9 percent in May.
Investors have hoped that China, the world's third largest economy, could lead the way out of recession, and on Thursday the World Bank said its stimulus spending should keep the economy growing this year and next.
The bank raised its China forecast for growth this year to 7.2 percent, below Beijing's official target of 8 percent but up from the 6.5 percent the bank projected in March.
"China's economic growth is unlikely to rebound to a high single-digit pace before the world economy recovers to solid growth," it said.
In Japan, a Reuters poll showed manufacturers have grown much less pessimistic about business over the last month, but consumer reluctance to spend has reinforced concerns that the recovery will be long and slow.
A belief that the worst is past in the deepest global recession in six decades has driven world stocks up around 40 percent from a March low. The FTSEurofirst 300 index was steady on Thursday, while Japanese shares fell 1.4 percent. (Writing by Elizabeth Piper; Editing by Ruth Pitchford)