AKARTA, Indonesia: Indonesian President Megawati Sukarnoputri said on Saturday that she supported a Japanese proposal for an extended free trade zone incorporating Southeast Asia, Japan, China and South Korea.

Megawati said she welcomed comments by visiting Japanese Prime Minister Junichiro Koizumi "about creating a better relationship and cooperation" with the 10-member Association of Southeast Asian Nations, as well as South Korea, China and Japan.

The talks in Jakarta came on the fourth stop in a five-nation Southeast Asian tour by Koizumi designed to galvanize ties with the region. The two leaders said they discussed issues including bilateral and regional trade and terrorism.

Talk of the extended free trade zone has dominated much of Koizumi's trip. Before arriving in Jakarta, he visited the Philippines, Malaysia and Thailand.

After his overnight stop in Indonesia - his first since taking office in April - he will visit Singapore. The other members of ASEAN are Brunei, Cambodia, Laos, Myanmar and Vietnam.

"The relationship and cooperation between Indonesia and Japan is getting closer," Koizumi said.

Japan is Indonesia's largest trading partner and financial donor. Jakarta relies heavily on Japanese aid to pay for its huge budget deficit and maintain government services after the collapse of its economy in the late 1990's.

Indonesia is also struggling to redefine itself politically after former dictator Suharto's 32-year regime ended in 1998.

In the lead-up to Koizumi's visit, newspapers in Jakarta focused on Japan's diminishing role in Asia, as its economy continues to contract.

The Jakarta Post newspaper on Friday wrote in an editorial that Indonesia and other Asian countries should look to Beijing, rather than Tokyo, as a regional leader in the future.

"It won't be long before China takes over the role that Japan has played as the main engine for growth among Asian economies," it said.

Megawati said the two leaders also agreed on the need to work together in fighting terrorism.

"International terrorism has been proven to be a threat to all regions," she said. "We stress the importance of regional and international cooperation."

Koizumi was also expected to have discussed with Megawati ways to combat international crime.

Indonesia has been regarded as a haven for money laundering. It has few financial-sector controls to curb endemic internal corruption.

Unlike Koizumi's stopovers in some other Asian capitals, there were no demonstrations protesting Japan's role during World War II. Indonesia's independence leaders collaborated closely with the Japanese occupiers, who effectively ended Holland's 350-year colonial rule over the East Indies