TOKYO (AP) _ Opponents of the government's financial reform plans boycotted a key parliamentary debate on bills designed to clean up Japan's debt-ridden banks.

The opposition parties refused to attend a committee meeting on the bills because of a dispute with the ruling Liberal Democrats over procedure.

The bills are seen as vital to saving Japan's economy and the delay dealt an immediate blow to Japan's markets. The benchmark stock average dropped 1.4 percent and the yen slipped against the dollar as investors worried that government deadlock could drive Japan deeper into recession.

``If the opposition can block the proposals, in the worst-case scenario it could lead to another general election,'' said Stephen Wood, senior equity salesman at ING Baring Securities. ``That would lead to a delay in needed reforms.''

Opposition lawmakers say the proposed banking reform bills would bail out poorly managed banks at public expense.

The ruling party's bills would allow the use of public money to take over ailing banks. Opposition parties want the wording of the bills strengthened to ensure that public funds are used only as a last resort.

The opposition has focused its criticism on Prime Minister Keizo Obuchi's plan to use public money to save the ailing Long-Term Credit Bank of Japan Ltd. The government wants to clean up the bank's bad loans before a proposed merger with Sumitomo Trust and Banking Co.

Opposition parties agreed later Wednesday to abandon their boycott of the committee meeting on condition that debate during Thursday's session focuses on the proposed Long-Term Credit Bank bailout.

Both sides say they realize the urgency of resolving Japan's banking problem, and are willing in principle to compromise.

Chief cabinet secretary Hiromu Nonaka said Wednesday that the LDP would review the opposition's proposals to try to find areas on which they could negotiate.

But Nonaka conceded reaching a compromise would not be easy.

``We'll have to go through a process before we can reach agreement, and there is certainly a feeling of distance between the parties,'' he said.