* IMF chief calls for further increase in IMF resources
* More funds could make IMF credible last resort lender
* Bigger IMF role would reduce incentive to hold reserves (Adds details, more quotes)
ISTANBUL, Oct 2 (Reuters) - The head of the International Monetary Fund on Friday called for a further increase in IMF resources so it can become a "credible" global lender of last resort.
IMF Managing Director Dominique Strauss-Kahn noted that a $500 billion increase in IMF funding agreed in April would require fresh approval every five years by contributing countries and could be activated only in times of crisis.
He said that could create "uncertainty" in markets about whether countries could count on the IMF in times of need.
"This uncertainty means that the IMF cannot yet serve as a credible global lender of last resort," Strauss-Kahn said in a speech ahead of weekend meetings of the IMF and World Bank. "And because providing global financial insurance is so critical for crisis resolution and crisis prevention, the resource base of the IMF should be increased further."
Strauss-Kahn argued that bolstering the IMF's lender of last role would discourage nations from relying on export-led growth in order to build up large currency reserves, helping pave the way for a more balanced global economy.
"The absence of adequate insurance to guard against sudden stops in private capital flows has played a major role" in the growth of reserves, he said.
Asian countries, wary of the IMF's handling of the region's financial crisis in the 1990s, have amassed trillions of dollars in savings to avoid having to return to the IMF for help again.
Strauss-Kahn said the build-up in reserves had come at the expense of investments that would have had a higher social return, such as education or infrastructure.
He also said the "self insurance" of large reserves could complicate monetary and exchange rate policy by fostering a potentially inflationary level of liquidity.
Strauss-Kahn said increasing the subscriptions, or quotas, of member countries, which would require them to pony up resources in exchange for greater voting power, would be one way to boost funding for the global lender.
The issue of increased quotas, which determine voting power in the IMF, is set to loom large for emerging economies when global financial officials meet in Istanbul this weekend for the semi-annual IMF and World Bank meetings.
Strauss-Kahn said it was difficult to know exactly how much in new resources the IMF would need, but noted that some experts have called for $1 trillion in added funding.
"We should also assess the role that regional reserve pooling arrangements could play as additional providers of financial insurance, and of possible cooperation between the IMF and such arrangements," he added.
For the first time ever emerging market countries, such a China, Russia, India and Brazil, contributed resources this year toward an IMF crisis fund, the New Arrangements to Borrow facility (NAB), but have made it clear that any future lending would depend on then acquiring a bigger stake in the IMF. They also want more say over how the resources in the NAB are spent.
In a major breakthrough last week, the Group of 20 major nations agreed to a shift of at least 5 percent in voting power from over-represented to under-represented IMF members.
However, not all under-represented countries are from the developing world. A country like Spain is under-represented, while Saudi Arabia is over-represented.
The proposed shift still needs to be agreed among the IMF's 186 members and is aimed at recognizing the increasing stake of emerging economic powers in the global economy.
(Reporting by Tim Ahmann and Lesley Wroughton; Editing by Ruth Pitchford)