Issuing a statement in the early hours of Monday morning, the G7 vowed to maintain financial stability, while the Frankfurt-based European Central Bank pledged to buy eurozone bonds to protect Spain and Italy.
"We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth," a G7 statement said, as Asian markets dipped on re-opening amid fears over the state of the global economy.
"We are committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe," it said.
"The US has adopted reforms that will deliver substantial deficit reduction over the medium term," said the statement, published after a flurry of telephone talks presided over by French Economy Minister Francois Baroin.
Germany and France, the two biggest eurozone economies, called on Sunday for full implementation of measures agreed at a eurozone summit in July to safeguard the single currency as markets braced for fresh turmoil this week.
"President (Nicolas) Sarkozy and Chancellor (Angela) Merkel reiterate their commitment to fully implement the decisions taken by the heads of state and government of the euro area and the EU institutions on July 21," a joint statement said.
"In particular, they stress the importance that parliamentary approval will be obtained swiftly by the end of September in their two countries," it added.
France currently heads the G7, which also groups Britain, Canada, Germany, Italy, Japan and the United States.
"In Europe, the Euro area Summit decided on July 21 a comprehensive package to tackle the situation in Greece and other countries facing financial tensions," the G7 statement said.
The European Central Bank had said earlier it would make major purchases of eurozone bonds. This was after Italy and Spain announced new measures and reforms to boost their economies.
Eurozone debt markets will be focused on any purchases of bonds issued by Italy and Spain, the third- and fourth-biggest eurozone economies, for signs of ECB activity. The central bank itself never identifies which bonds it buys.
To add to the turmoil, Standard & Poor's in a shock move Friday cut the US rating to AA+ from the top notch triple-A for the first time.
Washington has been split over how to reduce its more than $14 trillion debt without further hobbling the sluggish economic recovery, and its limited debt deal came after a bruising partisan battle.
International Monetary Fund chief Christine Lagarde welcomed the pledges by the ECB as well as France, Germany and the G-7 to stabilise the financial markets, saying: "This cooperation will contribute to maintaining confidence and spurring global economic growth."
Officials from the Group of 20 and Group of Seven economies held emergency conference calls and leaders of major powers worked the phones ahead of the opening of New Zealand financial markets, the first to trade in Asia.
In Washington, the US Treasury said Secretary Timothy Geithner will not step down despite opposition calls for him to leave because of the downgrade.
Fears of a global meltdown, which some see as potentially worse than the 2008 collapse, sent vacationing leaders into a flurry of phone calls between Berlin, London, Paris and Washington to stem the tide.
The ECB is the only European Union institution capable of acting fast and mustering enough financial firepower to convince markets not to test Italy and Spain, but at the cost of possibly fuelling inflation and damaging its own independence and credibility.
"The central bank is the only institution that can act quickly, and without a budget constraint," Goldman Sachs analyst Francesco Garzarelli noted.
It is also the eurozone's last line of defence because investors no longer believe that "politicians have a strategy for dealing with Italy and Spain," noted Will Hedden, a trader at IG Index.
Italy, the eurozone's third largest economy, saw its borrowing costs hit record highs last week amid falling confidence over its massive debt – equal to 120 percent of total annual output –along with poor growth prospects and political tensions.
Italian Prime Minister Silvio Berlusconi vowed lawmakers would return early to push through additional austerity measures including a constitutional amendment to force governments to keep balanced budgets.
Spain announced new reforms to bring in an additional 4.9 billion euros ($7.0 billion) and help curb its public deficit.
An ECB statement said it considered "decisive and swift implementation by both governments as essential."
A Royal Bank of Scotland statement welcomed the ECB move, saying "bond buying will stop the collapse of the bond market in countries under stress.
"This policy response is in our view necessary and welcome even if it does not address the underlying weaknesses of the system: high private and or public debt, a lack of fiscal integration, the absence of a euro area wide banking regulator with binding powers," it added.