* Concern over sluggish lending by commercial banks
* China offers assurances on dollar ahead of G8 summit
* World Bank says 2009 a perilous year
* European stocks start week lower
By Laura MacInnis and Tetsushi Kajimoto
GENEVA/TOKYO, July 6 (Reuters) - World economic leaders called on commercial banks to step up lending to revive an economy pitched into recession by failure of the global financial system.
The World Bank, in a letter to Group of Eight (G8) nations due to meet this week, said interventions by central banks and governments appeared to have "broken the fall in the global economy", but 2009 remained a dangerous year. "Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," Bank President Robert Zoellick wrote to G8 host, Italian Prime Minister Silvio Berlusconi.
The G8 leaders, meeting in Italy, are expected to touch on longer-term reforms of world finance. China has raised the idea of creating alternatives to the dollar as a global reserve currency. But Chinese officials said the suggestion, which hit the dollar last week, was a distant prospect.
Governments have poured trillions of dollars into banks to spur lending to firms and individuals to boost the economy. But leaders have criticised banks for sitting on the funds.
Data released on Monday showed overnight deposits with the European Central Bank had reached an all-time high -- evidence banks preferred to hoard cash rather than risk lending it. European shares fell and U.S. stock futures pointed to a weaker start on Wall Street, reflecting the same uncertainty about the global outlook.
British Prime Minister Gordon Brown said he was worried for those industries which are clamouring for funds.
"We have to increase bank lending, both of us are worried banks have yet to respond to in full the situation we have where industries in sectors are calling for help from the banks," he told a news conference with French President Nicolas Sarkozy in Evian.
ECB Governing Council member Ewald Nowotny said he saw no need to bypass the banking system at the moment to ensure credit reaches firms and consumers. "A strategy of taking money from the ECB and then putting it back into the deposit facility can only be short-term," he said.
Last month the ECB poured nearly half a trillion euros into money markets to try to kick-start lending.
Bank of Japan Governor Masaaki Shirakawa was similarly indirect in comments on Monday; but his message to banks was clear.
"Many firms still face a tight funding and lending attitude from banks, although there are signs that the trend has stopped deteriorating," Shirakawa said.
The comments reinforced views that the Bank of Japan will extend its emergency corporate financing support beyond its September deadline.
PROTECTIONISM
The World Bank's Zoellick saw any recovery imperilled by a trend to trade protectionism.
"High-income countries have used subsidies for troubled industries, while low-income countries are using selective increases in border barriers," he told a conference at the World Trade Organisation in Geneva.
"These trends could easily spin out of control in coming months as unemployment rises and one country feels compelled to respond tit-for-tat to the policies of another," Zoellick said,
Beijing has floated the idea of an alternative to the dollar as global reserve currency as part of reforms of a financial system found wanting in the worst crisis in decades. France and Russia have urged discussion of the matter at this week's G8 summit, expanded to include China and other developing nations.
However, G8 sources suggested there was no appetite for any change to the status quo, and China itself played down the likelihood of a reform of the current regime.
"The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come," Chinese Vice Foreign Minister He Yafei told reporters in Rome.
His views were echoed by central bank economist Wang Xin, who said it would be impossible "to get there in one step".
Russia has been promoting the notion of multiple reserve currencies in recent months. U.S. President Barack Obama, who arrives in Moscow on Monday, is widely expected to discuss the matter at talks with Prime Minister Vladimir Putin.
The debate is highly sensitive in financial markets wary of risks to U.S. asset values. Last week the dollar dipped briefly after suggestions its role may form a part of the agenda of the July 8-10 G8 summit.
European shares hit a seven-week low on Monday, dragged down by banks, oils and miners.
PILOT PROGRAMME
Reassurances by China, which holds an estimated 70 percent of its $1.95 trillion in official foreign exchange reserves in the greenback, helped the U.S. dollar inch higher in very thin Asian trade on Monday.
China officially launched a pilot programme to allow companies to settle imports and exports in the yuan in selected areas in a further step towards internationalising its currency.
Rioting in China's northwestern region of Xinjiang that killed at least 140 people on Sunday underlined the dangers of political instability in a vast country embracing many minority nationalities. Beijing blamed exiled separatists for the unrest in a largely Muslim area. (Reporting by Reuters correspondents worldwide; Writing by Ralph Boulton; Editing by Toby Chopra)