* U.S. urges full speed ahead on debt defenses

* Europe must act on crisis, not just talk

* China could help just by letting its currency rise

By Glenn Somerville and Lesley Wroughton

WASHINGTON, Nov 9 (Reuters) - Europe must quickly put up "a firewall with overwhelming force" to keep a debt crisis now centered on Italy from spreading into the rest of the region, a top U.S. Treasury Department official said on Wednesday.

Lael Brainard, Treasury's under secretary for international affairs and its top diplomat abroad, told the Carnegie Endowment for International Peace that the financial crisis in Europe was the key threat to global growth.

Euro zone countries are working on a plan for leveraging the 17-member currency bloc's 440-billion-euro ($600 billion) rescue fund to shield larger economies like Italy and Spain from a possible Greek debt default.

Brainard suggested speed in doing so was essential.

"The task ahead now for Europe is to accelerate elaboration and implementation of the firewall," she said. "The United States and our international partners will want to stand behind European leaders as they move to put in place a decisive solution."

Europe's sovereign debt crisis hit a new level of severity on Wednesday as Italian borrowing costs reached a level seen as a breaking point on Wednesday. Yields on Italian benchmark 10-year bonds shot above the 7 percent level that is widely deemed as unsustainable.

Brainard, who attended last week's meeting in Cannes, France, of leaders from the Group of 20 leading economies said there was wide acceptance of the need for protecting the rest of Europe.

"We strongly believe that, we saw it in our crisis," she said, referring to the 2007-09 financial crisis. "It is very important to have a firewall with overwhelming force to calm markets, restore market functioning and market confidence."

Brainard said Europe has the means to cope with its crisis, but now they must demonstrate how they intend to do so.

"There is no question in everybody's mind, including the markets' mind, that they have the resources and they need to show how they're going to mobilize those resources," she said. "They now need to move forward and actually elaborate the details."

BIGGER IMF ROLE?

As the crisis has deepened, there have been calls for the International Monetary Fund to take a bigger role in coping with it. In some respects, it already has by agreeing to send monitors to Italy to oversee its budget-tightening efforts.

Brainard said the Obama administration strongly supports the IMF's increased role but said nothing about calls from some quarters for member countries to build up the global lender's resources.

"The IMF is playing a very important role and can play an even more important role in terms of bringing its credibility and its technical assistance to bear in terms of (helping) Europe move forward on challenging fiscal reforms and challenging structural reforms," she suggested.

IMF chief Christine Lagarde told a financial forum in Beijing that European plans to bolster a rescue package for Greece were a "step in the right direction," but that the outlook for the world economy remained dangerous and uncertain.

"Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand ... we could run the risk of what some commentators are already calling the lost decade," Lagarde said.

In Italy's case, Brainard urged that it stick with proposals for imposing more austerity to try to get its deficits under control, saying that would instill some confidence in markets.

"The most important thing right now is that Italy moves forward on its fiscal plan ... which requires tough decisions be made, and moves forward on structural reforms," she said.

Brainard nodded to the need for China to step up to help resolve Europe's crisis and protect the global economy, expressing some irritation that Beijing is so reluctant to let its yuan currency rise in value so that it could become more of a consumer of goods and less of an exporter.

"Since day one, we have been very focused on working with China to resume an accelerating flexibility of its exchange rate," she said, rather than flooding markets with cheap goods and piling up huge foreign reserves.

Permitting more exchange-rate flexibility was "critically important to achieving a fair and balanced relationship with China," and would help rebalance the global economy, Brainard added.