The G-8 will continue to meet on matters of common importance such as national security. President Barack Obama initiated the move, which was to be announced Friday.
A mile from the convention center where talks will be held on Friday, police fired canisters of pepper spray and smoke at marchers protesting the summit after the protesters responded to calls to disperse by rolling trash bins and throwing rocks. The clashes began after hundreds of protesters, many advocating against capitalism, tried to march from an outlying neighborhood toward the convention center.
Officials said 17 to 19 protesters were arrested, and there were no reports of injuries.
The biggest clashes between police and demonstrators occurred at just about the time President Barack Obama and first lady Michelle Obama arrived. The protesters banged on drums and chanted "Ain't no power like the power of the people, 'cause the power of the people don't stop."
Protests notwithstanding, the atmosphere is a lot more relaxed than at the fear-driven sessions in Washington last November and in London in April. Still, the global recovery remains fragile, with many big financial institutions under strain.
U.S. Treasury Secretary Timothy Geithner predicted that summit partners would endorse the broad outlines of a proposal to deal with huge imbalances in the global economy - such as large trade surpluses in China and record budget deficits in the United States. He said other countries also seemed willing to scale back subsidies supporting fossil fuels that aggravate global warming.
At a news conference, Geithner also said the U.S. supports China's efforts to gain greater voting rights in the International Monetary Fund over the reservations of European nations, who would lose influence.
Given the rise of China's economic powers, "it's the right thing," and Europe recognizes that, Geithner said at the start of talks among the world's top 20 wealthy and developing nations.
The G-20 leaders gathered with their spouses for a welcoming reception at a botanical reserve, and then they parted for separate banquets Thursday night.
Throughout the day, world leaders descended on the comeback city of Pittsburgh to debate how to keep a fragile global recovery going.
Geithner said the G-20 countries had reached a consensus on the "basic outline" of a proposal to limit bankers' compensation by the end of this year. He said it would involve setting separate standards in each of the countries and would be overseen by the Financial Stability Board, an international group of central bankers and regulators.
Until now, European countries had pressed harder than the U.S. for limits.
"Europeans are horrified by banks, some reliant on taxpayers' money, once again paying exorbitant bonuses," said European Commission President Jose Manuel Barroso.
But Geithner predicted the proposed crackdown on bankers' bonuses would be in place by the end of the year.
German Chancellor Angela Merkel also said she was optimistic that far-reaching agreements are possible in Pittsburgh. She warned against focusing too much on imbalances in the world economy, but added, "I think we have a chance to reach progress in all important fields."
Obama, who arrived from U.N. meetings in New York at mid-afternoon Thursday, chose Pittsburgh as the summit site because the formerly struggling Rust Belt city has transformed itself economically into a rebounding, environmentally conscious community with a diversified economy.
It is the third time within a year that the G-20 leaders have met to deal with the global financial meltdown.
British Prime Minister Gordon Brown, speaking with reporters in New York before heading to Pittsburgh, said he hoped the group would agree to a new compact on jobs and growth. He warned, as Obama has, that nations should not move to quickly to end low-interest rates and stimulus spending packages.
"The recession is not automatically over," Brown said. He endorsed the G-20 replacing the G-8 which includes only the U.S., Japan, Britain, Germany, France, Italy, Canada and Russia.
Obama is perhaps under more pressure now than he was at the April session, his first venture on the world stage. At that meeting he got points, analysts suggested, just for not being George W. Bush, who was widely disliked overseas, especially in European countries.
Summit partners are in basic agreement on a joint strategy to encourage big exporting countries like China, Japan and Germany to shift their economies more toward domestic spending, and to encourage more savings and fiscal discipline in the United States.
Ahead of the Pittsburgh gathering, Obama challenged world leaders at the United Nations to overcome an "almost reflexive anti-Americanism" while at the same time viewing U.S. consumers as a market of last resort.
But differences still remained on tactics, including how quickly to move away from full-bore stimulation policies.
Washington wants the group to agree to a "framework for sustainable and balanced growth" that could include monitoring by an international group such as the International Monetary Fund that could detect policies that could lead to global imbalances.
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Associated Press writers Ben Feller, Pan Pylas, Daniel Lovering and Michael Fischer contributed to this report.
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