NEW YORK?Democratic White House hopeful Barack Obama said Thursday he would reform regulation of the "distorted" US financial system, as his foe Hillary Clinton warned of a Japan-style economic depression.

The two Democrats, and Republican presidential candidate John McCain fought a frenetic three-way battle over the feared recession, which is becoming a dominant issue, seven months before November elections.

Probing what Democrats see as a weak spot, Clinton warned that McCain lacked the expertise to handle an emergency White House phone call about an economic crisis, using the same metaphor she used to attack Obama on national security.

Obama meanwhile called for an additional $30-billion stimulus package -- prompting the Clinton campaign to accuse him of copying her recovery plans-- and called for more help for families stuck in the mortgage crunch.

"We let the special interests put their thumbs on the economic scales," he said, in a presidential-style setting here, against a backdrop of US flags.

"The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both."

Clinton touted her own economic credentials as she attempts to overtake Obama in the Democratic White House race, eyeing Pennsylvania, where she hopes blue-collar voters will power her to victory in a primary clash on April 22.

"We might be drifting into a Japanese-like situation," Clinton said in an interview with the Wall Street Journal, before making her own speech on the economy on Thursday.

"I don't think we can work our way out of the problems we're in the broad-based economy with monetary policy alone. I think the Japanese tried that, and tried and tried that."

Starting in the early 1990s, Japan slipped into a paralyzing slump triggered by the collapse of a property market bubble and ensuing credit crunch.

With their economy only just emerging from the doldrums, Japanese leaders now say that the United States has much to learn from their debilitating experience.

Obama backed a congressional initiative calling for incentives for lenders to buy or refinance existing mortgages, in an effort to help Americans facing foreclosure to honor loans, at affordable prices.

He also called for greater capital requirements from financial institutions and for a streamlining of overlapping regulatory agencies.

"The American economy does not stand still, and neither should the rules that govern it," Obama said.

Clinton's housing plan demands action to help homeowners restructure mortgages, removes legal curbs for lenders keen to relax loan terms and calls for a $30-billion stimulus package to help states fight foreclosures.

"The Bush economy is like a trap door -- Too many people are one pink slip away, one missed mortgage payment away, one medical diagnosis away from falling through and losing everything," Clinton said Thursday in North Carolina.

But presumptive Republican nominee McCain condemned the approach of both of his potential Democratic election rivals as a doomed attempt by the state to interfere in the market economy.

"What is not necessary is a multi-billion dollar bailout for big banks and speculators, as senators Clinton and Obama have proposed," the Arizona senator said in a statement.

"There is a tendency for liberals to seek big government programs that sock it to American taxpayers while failing to solve the very real problems we face."

Clinton and Obama have accused McCain of planning to prolong what they say are President George W. Bush's failed economic policies, as part of a general attempt to link him to the unpopular president.

But one of McCain's top economic advisers, former Hewlett Packard chief Carly Fiorina, said Thursday that such comparisons were laughable.

"The truth is, John McCain has always been his own man. He has certainly differed with the president over the prosecution of the war in Iraq, sometimes to his own political detriment within his own party," she said.

"He has certainly differed with President Bush over global warming, its reality, the need for the American government to take the lead in tackling global warming."