UPDATE 1-France and Spain's leaders vouch for EU bank union

MADRID/PARIS, Oct 10 (Reuters) - The leaders of France and Spain called for rapid progress towards a pan-European banking union, saying they hoped an EU summit on Oct. 18 would help promote that goal.

The European Commission proposed earlier this month that the European Central Bank take charge of supervising all banks in the euro currency zone in stages from January, as a step towards creating a banking union under which chiefly euro zone countries would eventually jointly back their lenders.

Spanish Prime Minister Mariano Rajoy, addressing a joint news conference on Wednesday after talks with French President Francois Hollande in Paris, said he wanted to see "clear progress" before year-end.

Hollande said he hoped that moves to turn the banking union from project to reality would get a significant boost at a European Union summit at the end of next week.

"Our position is that as soon as the October Council (EU summit) we should make as much progress as possible on the banking union," said Hollande.

"It's banking supervision with the (European) central bank responsible at euro zone level, and all banks should be covered by this supervisor," he said. "Other steps will then have to be taken on banking supervision but we will have built a solid foundation."

Winning broad support for a prompt introduction of the new supervision framework is important because it will allow the euro zone's rescue fund, the European Stability Mechanism (ESM), to directly inject much-needed capital into banks, such as those in Spain.

(Reporting By Fiona Ortiz in Madrid, Catherine Bremer and Leigh Thomas in Paris; Writing by Brian Love; Editing by Elaine Hardcastle)

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