* UK's Darling says will not hurt London's competitiveness
* UK fin min says banks must show restraint over pay
* Would rather boost economy for too long than too short
* Darling sees no quick switch from dlr as global reserve (Adds quotes, changes dateline to HORSHAM, England)
By Matt Falloon and Steve Slater
HORSHAM, England, Dec 7 (Reuters) - The British government will not do anything to hurt London's financial prowess and would rather go too far with economic support measures than not go far enough, Finance Minister Alistair Darling said on Monday.
Darling also said currency markets had been volatile this year and global imbalances would need to be addressed eventually but did not foresee an imminent switch from the dollar as the world's main reserve currency.
The Labour government is mulling a windfall tax on bonuses in the financial sector as part of its pre-budget report on Wednesday, government sources have told Reuters, sparking concern from banks that London could lose its competitive edge.
"I am determined we do not do anything that undermines that position," Darling told a business audience in southern England.
But he said banks would have to change their pay cultures to avoid encouraging the kind of risky behaviour that helped trigger the credit crisis.
"The industry as a whole does need to show some degree of restraint, some acknowledgement that they need to rebuild their own capital positions," he said.
"There wouldn't be a bank standing today if taxpayers in this country and in every other country hadn't put their hands into their pockets to stabilise the banking system."
He said more competition would need to be cultivated in Britain's banking sector following consolidation and extensive state support during the financial crisis.
Darling is also expected on Wednesday to lay out more detail on how he plans to cut Britain's ballooning deficit by half over four years but said he would "rather be found guilty of removing the support slightly too late than slightly too early."
"I think there are too many people thinking this is all behind us now. We've had the worst shock to the system for the last 100 years and you can't just get up, dust yourself down and walk off as it nothing has happened," he said.
The opposition Conservatives, ahead of Labour in opinion polls with only a few months to go before a parliamentary election, have said they want to remove stimulus measures and cut the debt faster to bolster investor confidence in UK assets.
Darling said such a policy would be "ruinous."
"You can halve the deficit within a four year period, but if you go further and faster you run the risk of either not being able to deliver or actually damaging the economy," he said.
"It would be foolish for anyone to imagine that we are collectively out of the woods yet." (Editing by Kenneth Barry)