WASHINGTON (Reuters) - Central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the outcome of Greek elections on Sunday causes tumultuous trading, G20 officials told Reuters.

A senior U.S. official cautioned that the Greek election will not provide "the definitive signal on what happens next" in the euro zone debt crisis.

But if severe market strains emerge after an unusual confluence of three elections this weekend - there are important polls in Egypt and France as well - central bankers are on standby to ensure enough cash is flowing through the financial system.

"The central banks are preparing for coordinated action to provide liquidity," said a senior G20 aide familiar with discussions among international financial diplomats. His statement was confirmed by several other G20 officials.

Wall Street stocks jumped sharply on the news, with the S&P 500 and the Dow Industrials both up more than 1 percent. The euro added to gains and U.S. government debt prices fell, boosting yields.

A move to boost liquidity could mark a dramatic backdrop to the G20 summit of world leaders, who will gather in Los Cabos, Mexico, on Monday and Tuesday where Europe's escalating crisis tops the agenda.

Leaders will be accompanied by finance ministers playing an advisory role. The ministers, who usually keep a low profile at these summits, have scheduled a working dinner on Monday and lunch on Tuesday.

Depending on the severity of the market response, an emergency meeting of ministers from the Group of Seven developed nations could be held on Monday or Tuesday in Los Cabos, with central bankers joining by phone, a second G20 official said.

Their first line of defense probably would be a statement that policymakers are ready to take whatever steps are needed to assure market stability.

This usually is a signal for technical steps to keep cash flowing through the financial system. Currency swap lines already are in place, which can be drawn upon to ensure there are enough dollars available if global investors rush into the safety of U.S. assets. Central banks also can hold extra auctions to flood banks with short-term cash via repurchase agreements.

Currency intervention also is possible, though less likely to be sanctioned by the G7. Japan and Switzerland might intervene to weaken their currencies if a rush to safe-haven assets pushes up the yen and the Swiss franc.

Japan already has indicated to its G7 partners concerns about yen strength and it had considered acting earlier this month, several sources with direct knowledge said.

The International Monetary Fund took the unusual step on Thursday of sanctioning currency intervention for Japan to counter stresses from Europe, noting its currency is "moderately over-valued.

As for Switzerland, it has drawn a line in the sand at 1.20 francs to the euro. Swiss National Bank Chairman Thomas Jordan and the country's finance minister, Eveline Widmer-Schlumpf, on Thursday both threatened capital controls to prevent the franc soaring if Europe's crisis deepens.

"The SNB will not tolerate this," Jordan said.

TOGETHER TO SOOTHE MARKETS, ALONE ON ECONOMIES

As if the election in Greece were not enough, investors will need to parse the impact of a presidential election in Egypt that could roil oil markets and an election in France that looks set to put socialists in control of parliament after gaining the presidency in May.

While central banks might stand together to counter credit tightness and market volatility, the bar would be far higher for coordinated monetary easing, which is considered unlikely.

The last time central banks cut interest rates collectively was in October 2008 after Lehman Brothers collapsed. In that episode, credit evaporated with overnight interbank rates shooting above 4 percent and stock market volatility as measured by the VIX fear index hitting a record above 80.

None of these measures is approaching severe stress today.

While volatility has risen sharply since March as global stock markets lost ground, at 24 the VIX is way below crisis levels. Interbank lending costs, measured by three-month LIBOR, EURIBOR and EONIA, are near record lows.

"Presently there is enough liquidity in the system," said Erik Nielsen, chief economist at UniCredit.

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