Hugo Chavez, who once led a failed coup attempt before winning power via the ballot box, condemned the pro-market policies which many Latin American states have adopted in the last 20 years but are increasingly out of favor with voters.

"Neoliberalism has begun its decline and has come to an end," Chavez told reporters after posing for a photograph with nearly 60 other heads of state from the European Union, Latin America and the Caribbean at a summit in Vienna.

"Now a new era has begun in Latin America. Some call it populism, trying to disfigure our beauty. But it is the ... voice of the people that is being heard," he said.

Mexican President Vicente Fox earlier said the region had failed to overcome its historic problems, including "populism" and inconsistency of policies.

Bolivia and Venezuela have increasingly riled governments on both sides of the Atlantic.

Bolivia's new President Evo Morales, an ally of Chavez, nationalized its oil and gas sector on May 1 and has promised further tough action with foreign investors.

And Venezuela has upset plans for EU-Andean trade talks by saying it will quit the South American group in protest at trade deals by neighboring countries with the United States, whose influence Chavez is trying to challenge.

British Prime Minister Tony Blair urged the two countries not to act irresponsibly.

"What countries do in their energy policy when they are energy producers like Bolivia and Venezuela matters enormously to all of us," he told reporters. "My only plea is that people exercise the power they have got in this regard responsibly for the whole of the international community."

European Commission President Jose Manuel Barroso declined to comment on specific nations but told reporters populism was a threat. "We are a Europe against populist tendencies," he said.

United Nations Secretary General Kofi Annan said investors needed guarantees of long-term stability. "Without that assurance you may be disrupting all economic activities," he told reporters.

The summit was planned as a chance to take ties between the EU and several regions of Latin America to a new level.

But with several Latin American governments embroiled in disputes, only a deal for the launch of trade, investment and aid talks between the EU and Central American countries is expected.

CHALLENGE

Morales, a former coca farmer making his first presidential trip to Europe, has relished the chance to challenge former colonial powers and Bolivia's present heavyweight neighbor Brazil for "pillaging" his country.

EU diplomats say they do not want a row with Bolivia but are worried about the country's new direction.

"We don't have a paternalistic relationship with Bolivia. What we want is to encourage Bolivia not to do things that in the end will hurt Bolivians themselves," a top EU official said.

Brazil reacted angrily to comments by Morales that state-controlled oil company Petrobras had acted illegally in Bolivia.

"We are perplexed by what (he said). If you want to interpret 'profoundly perplexed' with a term like 'indignation,' that would not be far from the truth," Brazilian Foreign Minister Celso Amorim told reporters in Vienna late on Thursday.

On Friday, Morales is expected to meet Spanish Prime Minister Jose Luis Rodriguez Zapatero and Brazilian President Luiz Inacio Lula da Silva, also a former union leader but who has stuck to more orthodox economic policies than Morales.

As well as Brazil's Petrobras, Spain's Repsol is a major investor in Bolivia's energy sector.