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Tourists stand outside the closed gate of the Roman Agora during a 24-hour strike in Athens, Thursday, Dec. 1, 2011.

Thanassis Stavrakis/Thanassis Stavrakis/AP

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.

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"Now is the time to act decisively and seize the opportunity to finalize 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 per cent on their holdings, with Greece's new bonds featuring 30-year maturity and a progressive coupon, or interest rate, averaging out at 4 per cent, another banking official close to the talks told Reuters.

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

"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 ($18.5-billion U.S.) of bond repayments in March.

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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.

The source said the European Central Bank's part in the deal was also discussed.

"We expect them to make an effort as well. It could be through a special deal, as you would expect for a body like the ECB," the source said.

IIF chief Charles Dallara, who negotiates in the name of the private bondholder, will resume talks with Greek officials on Saturday. No time was set for the meeting yet.

Greece needs to have a deal in the bag before funds are doled out from a €130-billion rescue plan that the country's official lenders, the European Union and the International Monetary Fund, drew up in October.

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The paperwork alone is expected to take weeks, meaning failure to secure a deal soon could put Athens at risk of a chaotic default in March, which in turn could jolt the financial system and tip the global economy into recession.

Adding to the pressure, officials from the "troika" of foreign lenders began meetings with the Greek government on Friday to discuss reforms and plans to finalize that bailout package.

"The deal must be completed. There is no more time left," said a Greek government official who requested anonymity.

The swap is aimed at cutting €100-billion off Greece's debt load of more than €350-billion. The second bailout – drawn up on the condition that Greece pushes through painful cuts and structural reforms – is expected to reduce Greece's debt to a more manageable 120 per cent of gross domestic product in 2020 from about 160 per cent now.

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