The head of the International Monetary Fund called Thursday for greater "political clarity" in Greece and Italy, after talks with Chinese leaders dominated by Europe's worsening debt crisis.

Greece and Italy are grappling with domestic political upheaval brought on by the sovereign debt crisis that has engulfed the eurozone, and Christine Lagarde said both countries urgently needed to sort out their leadership difficulties.

"Political clarity is conducive to more stability... it is much needed in Greece, it is much needed in Italy," the IMF chief told journalists in Beijing.

Confusion over the future leadership of both countries was "conducive to volatility", added Lagarde, who is on a two-day visit to China.

Her comments came as Greece prepared to unveil a new transitional government to ratify a crucial EU bailout deal and hold early elections after days of bickering between political leaders.

Italy's Prime Minister Silvio Berlusconi has said he will step down once credible economic reforms are in place, after which talks on a new government will start.

Lagarde also said emerging economies had a role to play in resolving the debt woes threatening the global economy, calling on them to allow their currencies to appreciate.

"Emerging markets, and large emerging markets in particular, have a role to play either by reengineering their growth model or by letting their currencies appreciate appropriately," she said.

China has been accused by Europe, the United States and other trade partners of keeping its currency grossly undervalued, which gives its exporters an unfair advantage.

Asian stock markets slumped on Thursday after Wall Street suffered a pummelling, as Italy became the latest European country to suffer a huge surge in borrowing costs.

In talks later Thursday, China's Premier Wen Jiabao told Lagarde that Europe's worsening economic crisis was leading to financial instability in developed nations, state media said.

But he expressed confidence in Europe's own efforts to control the turmoil. "The Chinese government supports the measures adopted by the EU, the European Central Bank and the IMF to address the crisis," China Central Television quoted Wen as telling Lagarde.

China "is willing to make efforts with all sides to discuss effective methods of cooperation to uphold financial stability and strengthen and push forward the strong, sustainable and balanced growth of the world economy."

Earlier she met with Vice Premier Wang Qishan, China's top finance official, and central bank governor Zhou Xiaochuan, weeks after the chief of the European bailout fund travelled to Beijing to try to persuade leaders to contribute.

Lagarde would not comment on the specifics of her discussions with the leaders, saying: "If I was to discuss the terms of any particular loan I would not discuss it here."

But she said that an offer by any member of the IMF to increase their "lending or contribution" was "certainly welcome".

The IMF chief's visit to China comes amid mounting concerns over the debt crisis facing the eurozone.

On Wednesday, Lagarde warned that Asian economies were not immune to the crisis, saying the world risked a "downward spiral" if it did not pull together to tackle the problem.

China has the world's largest foreign exchange reserves at $3.2 trillion, but has so far made no firm commitment to provide financial assistance for the eurozone.

Europe has been discussing establishing a special purpose investment vehicle to persuade China and other potential contributors to sign up, and is exploring the possibility of linking it to the IMF.

Lagarde visited Moscow before heading to China, and on Wednesday the Russian government said it was not prepared to invest directly in the EU rescue fund and would prefer to help the eurozone through the IMF.

But emerging economies -- or "crisis bystanders" -- that have expressed a willingness to boost their investment in the IMF want the funds to be made available to all members, not just eurozone countries, she said.

Any move to help developed European countries out of the crisis would be a hard sell for the leaders of China, where millions of people still live in poverty, and inflation and housing costs are straining household budgets.

China has also been burned before on risky overseas investment. It bought stakes in investment bank Morgan Stanley and asset management firm Blackstone only to see their values collapse in the 2008 global financial crisis.