But Gilani said he still hoped Pakistan could avoid IMF assistance if it wins billions of dollars in aid from friendly govts at a meeting in Abu Dhabi next month.

Pakistan has been in discussions with the IMF since last week but officials from both sides have been tight-lipped about the talks. Faced with diminishing foreign reserves, it has a few weeks to raise billions of dollars in foreign loans to meet debt payments and pay for imports. We are already talking to the IMF and they are talking about terms and conditions, Radio Australia and Javno.com quoting Gilani as saying in an interview with a British news agency on the sidelines of a World Economic Forum meeting in Istanbul, Turkey.

Whether those terms and conditions are suitable to Pakistan or not, my advisers have to make up their mind, he said. Islamabads seven-month-old government, running Pakistan after more than eight years under former army chief Pervez Musharraf, has been reluctant to go to the IMF although many analysts believe this is inevitable. The Friends of Pakistan group - which includes the United States, the European Union, the UAE, the United Nations and China - is due to meet next month. The Friends of Pakistan are making a package to get Pakistan out of the present situation, Gilani said.

If our friends start supporting us immediately, maybe Pakistan will not need IMF support, he said. Asked if the IMF had suggested a cut in defence spending as part of any deal, Gilani said: Certainly not.

The Premier said there was no possibility of default and Pakistan would seek deferred oil payments from Saudi Arabia.

Asked if his country also planned to ask Iran for deferred oil payments, Gilani said: I think there is no harm in talking to Iran (about oil deferred payments). Certainly we will ask all our friends to help us out of the difficult situation. In the interview, Gilani criticised recent US attacks on militants on the Pakistani side of the border.

These actions are counterproductive and are not helping us combat terrorism, he said.

On Wednesday, Pakistan summoned the US Ambassador in Pakistan to protest over missile strikes by pilotless US aircraft on the Pakistani side of its border with Afghanistan, but Gilani said relations between the two allies were good. There is only one policy the people of Pakistan are not happy with the US, and that is the interference of the territory and the sovereignty of Pakistan.

"Getting aid from the IMF is our last option," Zardari told the Saudi Gazette in an interview published in Pakistani newspapers on Monday.

But he added: "Actually, we must consider the IMF option as a medicine that will ultimately cure our ailing economy."

Zardari will travel to Saudi Arabia on Tuesday to seek economic assistance including deferred payments for its crude oil imports. Zardari said Pakistan's annual oil bill had gone up to $12 billion from $3 billion in five years.

"Such an increase is also creating difficulties for our budget as we have tried to protect our people from the rising cost of energy by subsidising fuel and electricity," he said.

Pakistan's economic woes began before the global financial crisis escalated in September as its battled rising global prices for raw materials and food.

But analysts say the crisis has compounded Pakistan's difficulties by making donors, trying to protect their own economies from the global financial storm, reluctant to step in.

Pakistan has been seeking assistance from its allies, including the United States and China, but diplomats say donors, including Saudi Arabia, want to see the government reach an agreement with the IMF before considering their own help.

Pakistani officials have held days of negotiations with the IMF in Dubai and the IMF said on Thursday the talks had been concluded and more discussions would be held in a few days.

FRIENDS

Zardari said he would also seek Saudi support for the Friends of Pakistan group, which is due to meet in Abu Dhabi on Nov. 17.

The group was set up in September on the sidelines of the U.N. General Assembly in New York by countries that want to help Pakistan, whose support is seen as vital in defeating al Qaeda and bringing stability to neighbouring Afghanistan.

Pakistan needs urgent help as its foreign reserves dwindle.

Total reserves fell $400 million to $6.92 billion in the week to Oct. 25. The central bank accounted for $3.71 billion of the total, less than September's import bill of $3.807 billion.

Officials have not given details of the IMF talks but analysts say interest rates were likely the biggest bone of contention.

The prime minister's top economic adviser said on Friday Pakistan would raise interest rates if it believed that was a necessity to cut inflation.

Inflation, fueled by subsidy cuts and a nearly 25 percent slide in the value of the rupee against the dollar this year, is running at an annual rate of almost 25 percent.

The IMF had suggested that Pakistan would need to raise its benchmark discount rate of 13 percent by 3.5 to 4 percentage points in exchange for financial assistance, a government official, who did not want to be identified, said last week.

On the revenue side, the economic adviser, Shaukat Tarin, told the Financial Times the government would make significant efforts to improve its taxation system in the next 12-18 months.

That would include taking politically unpalatable steps such as taxing the incomes of influential landowners and plugging loopholes to curb large-scale evasion, he told the newspaper.

"Reforming the tax collection structure is central to our economic policies," Tarin said.

(Writing by Robert Birsel; Editing by Neil Fullick) Keywords: IMF/PAKISTAN (robert.birsel@thomsonreuters.com; +92 51 281 0017; Reuters Messaging: robert.birsel.reuters.com@reuters.net)

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"We want to tell savers that their deposits are safe," Merkel said at a news conference one day after an emergency summit of European leaders.

Merkel met in Paris Saturday with French President Nicolas Sarkozy and prime ministers Gordon Brown of England and Silvio Berlusconi of Italy. The leaders said afterward they would act on their own to shore up failing financial institutions and banks rather than sign onto a formal continent-wide plan.

However, they said they were planning a global economic summit to examine whether overhauls are needed for the existing World War II-era international financial system.

The deposit guarantee announced Sunday came officials learned that the collapsed commercial property lender Hypo Real Estate was worse off than previously expected, officials said.

The German Finance Ministry announced a $69 billion bailout plan for Hypo that would have the government contribute $37 billion while private lenders made up the difference, the Post said.

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French President Nicolas Sarkozy, Prime Ministers Gordon Brown of Britain and Silvio Berlusconi of Italy and German Chancellor Angela Merkel convened Saturday at an emergency meeting in Paris to discuss a concerted European response to the Wall Street financial crisis that has lead to a string of bank nationalizations in the U.S. and Europe.

Sarkozy, who has emerged as Europe's most vocal advocate of a continent-wide response, told reporters that for now, Europe's four leading economic powers have agreed to continue to address bank failures one case at a time.

He said each country would use "its own means" to safeguard banks from collapse, but would do so "in a coordinated way."

Merkel and Brown were particularly opposed to creating a Europe-wide pool for failing banks, the newspaper said.

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