* European Union leaders set end-of-year deadline * Reforms aimed at making markets safer for investors * UK: supervision must be at national, as well as EU, level
(Recasts with outcome of summit)
By Huw Jones
BRUSSELS, March 20 (Reuters) - European Union leaders set themselves an end-of-year deadline on Friday for agreeing ambitious reforms of financial supervision in a bid to make markets safer for investors.
Improving supervision of cross-border banks is a core part of the EU's plan to apply lessons learnt from the credit crunch after governments were forced to use billions of euros of taxpayer money to shore up a string of lenders.
A high-level group headed by a former Bank of France governor, Jacques de Larosiere, recommended setting up a body chaired by the European Central Bank to monitor system-wide risk.
A second body would look at making day-to-day supervision across the European Union more consistent but with the power to override a national watchdog.
"The European Commission has been asked to put forward concrete proposals to enable the council (EU leaders) to take final decisions before the end of this year," Luxembourg Prime Minister Jean-Claude Juncker told reporters.
French President Nicolas Sarkozy said: "On Larosiere, legislative decisions by the end of the year."
The summit's conclusions said "first decisions" would be taken at the leaders' June meeting but made no mention of a deadline for final adoption.
EU leaders agreed the de Larosiere report was the template for change.
"For us, de Larosiere is the basis for future work," Juncker said.
Britain has already given its blessing to reforming how big cross-border banks are supervised but fears national supervisory powers in Europe's biggest banking centre would be weakened.
NO MONOLITH
The UK wants de Larosiere to be a kick-off point for debate and have no deadline for implementation, but French pressure for a clear timetable appears to have won the day.
Britain has warned against creating a "monolithic" pan-EU regulator divorced from grassroots supervision.
"We also need to ensure that supervision is done also at a national level," British Prime Minister Gordon Brown told reporters after the summit.
Reform of supervision is part of wider efforts to beef up the bloc's financial rules at EU and international levels.
EU leaders agreed to work quickly on adopting forthcoming draft laws on hedge fund and private equity supervision, additional bank capital requirements and executive remuneration.
New rules on credit rating agencies, insurance industry solvency requirements and bank capital requirements are already near adoption and EU leaders called for a speedy conclusion to negotiations. (Additional reportig by Estelle Shirbon, Kerstin Gehmlich, Frank Prenesti and Julien Toyer, editing by Dale Hudson)