"The session... is going to focus on peace and security, Iran and North Korea will be discussed" a senior US official told reporters at the Group of Eight (G8) summit being held north of the Canadian city of Toronto.

The official, who spoke on condition of anonymity, said US President Barack Obama also planned meetings with the leaders of South Korea on Saturday and of China and Japan on Sunday to discuss the security situation in East Asia.

The heads of eight powerful nations are set to debate North Korea's alleged sinking of a South Korean warship, with Japan pushing for an outright condemnation of the nuclear-armed state.

The outcome on Saturday, the final day of the two-day summit, will be watched closely by diplomats as it can set the stage for any UN action over the incident, in which 46 sailors died.

Japanese Prime Minister Naoto Kan told German Chancellor Angela Merkel in talks at the summit sidelines Friday that "it is important for G8 to support South Korea and issue a clear message of condemnation" against North Korea.

Four of the five permanent UN Security Council members -- Britain, France, Russia and the United States -- are in the G8. The G20 meeting of developed and emerging nations takes place in Toronto later Saturday and on Sunday.

On Friday, Europe and the United States tried to bridge differences over how to sustain fragile global economic recovery and sought common ground on dealing with ballooning deficits.

All eyes at the summit in an exclusive lakeside resort were on a potential clash between European leaders bent on slashing spending and a Washington fearful of stifling growth.

Germany's Chancellor Angela Merkel showed her hand early, insisting members must move fast to cut soaring public deficits and ensure financial stability -- but both she and US officials stressed this did not represent a split with the United States.

"The discussion was not controversial, there was a lot of mutual understanding," she told journalists.

"I have made it clear that we need sustainable growth and that growth and intelligent austerity measures don't have to be contradictions," Merkel said.

A senior US official, speaking on condition of anonymity, confirmed the meeting had gone well and that Merkel and Obama had not fallen out over Germany's call for immediate fiscal tightening.

"The president sees deficit reduction as part of a medium and long-term growth strategy. Coming to the G8 and G20 his main focus is these things are not exclusive," the administration official told reporters.

The leaders -- from Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- held closed door talks among themselves and with a group of African leaders.

Europe has been spooked by a sovereign debt crisis that has pushed some eurozone members such as Greece to the brink of default -- threatening the stability of the euro and of some European financial institutions.

Merkel has led the way in pushing for governments to rein in their record deficits, and has vowed to slash Germany's own spending by 80 billion euros (98 billion dollars) over the next four years.

Britain's new government this week announced the biggest cuts in decades.

But some other capitals, including Washington, fear a dramatic attack on spending could undermine jobs, consumer demand and even the strength of the global recovery -- threatening a "double dip" recession.

In Toronto around 2,000 protesters -- a loose coalition of leftist activists and anarchists -- faced off against riot police, but there was no serious violence and no more than a handful of arrests.

Larger protests were planned for Saturday when delegates return to Toronto from the Huntsville resort to meet more world leaders under the G20 format..

Canada has spent a billion dollars to secure the summit behind a ring of steel and police reinforcements, hoping to avoid a repeat of the large-scale street violence that has marred previous global meetings.

Aside from moving closer to agreement on the economic challenge, the leaders announced a five-billion-dollar package of aid to help protect mothers in the developing world from illness.

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