Chief Lagarde says disappointed over inconclusive talks with Greece

By Sarah N. Lynch and David Morgan

WASHINGTON (Reuters) - The head of the International Monetary Fund said Sunday she is disappointed in the stalemate over talks to prevent Greece from defaulting on its IMF debt, but said the euro area is in a "strong position" to respond effectively to developments.

In a statement, IMF Managing Director Christine Lagarde endorsed a balanced approach to restore economic stability and growth in Greece, accompanied by structural and fiscal reforms, and remained committed to continuing negotiations.

Lagarde said she shared her "disappointment" over the inconclusive outcome with the IMF executive board and welcomed the readiness of the European Central Bank and Eurogroup to make use of all available tools to preserve the euro zone's stability.

"These statements underscore that the euro area today is in a strong position to respond to developments in a timely and effective manner, as needed," she said, noting that the Greek government must enact reforms supported by "financing and debt sustainability measures."

Greece said on Sunday it may impose capital controls and keep its banks shut on Monday, after creditors refused to extend the country's bailout.

Greece's government had been negotiating a deal to release funding in time for its IMF payment, which is due on Tuesday.

Then suddenly, in the early hours of Saturday, Prime Minster Alexis Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal.

The country's creditors turned down the request, leaving Athens in the lurch and in danger of defaulting.

Congressman Ed Royce, the chairman of the U.S. House of Representatives Foreign Affairs Committee, said on Sunday he fears Greece may leave the euro and fuel more instability in the region.

"Greece looks likely at this point to leave the euro and I think the danger of that is there are other left-wing governments in Europe that might follow suit," he said on Sunday Morning Futures with Maria Bartiromo.

"That would lead to a very consequential impact for the euro and frankly create more instability in the region. It is a pity that Greece does not get its act together."

(Additional reporting by David Morgan in Washington and George Georgiopoulos in Athens; editing by Ralph Boulton and Digby Lidstone)