Greece debt swap talks drag into weekend

Greece and its creditors will continue negotiations on a debt swap on Saturday, after late-night talks edged them closer to a vital deal but failed to clinch an agreement.

Athens is anxious to strike a deal before Monday's meeting of euro zone finance ministers, just in time to set in motion the paperwork and approvals necessary for Greece to receive a new injection of aid to avoid a messy bankruptcy in March.

"The elements of an unprecedented voluntary PSI are coming into place," the Institute of International Finance said in a statement after Friday's three-hour evening negotiation session, referring to the bond swap scheme.

"Now is the time to act decisively and seize the opportunity to finalise this historic deal and contribute to the economic stability of Greece, the euro area and the world economy."

The statement seemed to be addressing Greece's official lenders, the EU and the IMF, who have driven a hard bargain behind the scenes of the negotiations, sources in Athens said.

"We will not know anything for sure before Monday," said a banking source close to the talks. "The euro zone ministers will examine the proposal and say whether we have a deal. If they say we don't, we're back to the negotiating table."

Private bondholders will likely take a hit of 65 to 70 percent on their holdings, with Greece's new bonds featuring 30-year maturity and a progressive coupon, or interest rate, averaging out at 4 percent, another banking official close to the talks told Reuters.

A 15 percent cash sweetener will be made up of short-term bonds from Europe's temporary bailout fund, the European Financial Stability Facility (EFSF), two sources said.

"It will be near cash-equivalent short term EFSF bonds," one of the sources said.

Haggling over the coupon had held up the long-running talks as Greece raced to wrap up an agreement, raising the prospect of a messy default when Athens faces 14.5 billion euros ($18.5 billion) of bond repayments in March.

Another source close to the talks said the two sides had been hoping to bag a preliminary deal on Friday, with technical discussions with lawyers continuing over the weekend and into next week.

"There is still work to be done. The two sides are doing what they can but the paymasters must give their blessing," the source said.