EU: Greece aid deal 'ready in days'

He said negotiators from the EU, the European Central Bank and the International Monetary Fund were "working day and night" to finish details of a bail-out that would avoid a wider crisis and "safeguard the financial stability in Europe and globally".

Mr Rehn's appearance at the European Commission's daily news briefing was scheduled at the last minute and appeared to be designed to reassure financial markets that the money would come through and a Greek government debt default was not on the cards.

Markets have been in turmoil over the last few days as the seemingly never-ending Greek crisis threatened to drag other countries like Portugal and Spain into the mire.

"Rehn's appearance means that we expect this deal to be wrapped on the weekend," said an EU official who asked not to be named.

German Chancellor Angela Merkel, who has pushed for strict conditions on help for Greece, said: "Germany will help as soon as the preconditions for that are there. We expect a result in a few days. After that, we in Germany will set our legislative process in motion."

Greece says it needs a bail-out in order to pay €8.5bn in bonds due May 19 - fanning fears that Germany might delay its share of the €45bn overall bail-out package agreed earlier this month.

The consensus in the markets is that a much more extensive package will be offered to Greece than the original one-year €45bn deal agreed - that has helped to shore up confidence in the markets and Europe's main stock indexes have advanced while the euro has clambered off its recent lows.

Many investors now think that a three-year €120bn deal may be in the offing.

The prospect of a deal eased massive pressure on Greece in the bond markets and saw shares on the Athens Stock Exchange rebound strongly after days of heavy losses.

The market's General Index shot up by 7.71% to 1,839.06 points in afternoon trading, while the spread on Greek 10-year bonds dipped to 6.48% over their benchmark German equivalent, from a massive 10% on Wednesday.

The FTSE 100 index of leading British shares was up 47.33 points, or 0.9%, at 5,633.94 while Germany's DAX rose 46.22 points, or 0.8%, to 6,130.56. The CAC-40 in France was 39.97 points, or 1.1%, higher at 3,826.97.

Markets appeared less jittery yesterday, following two days of turmoil stoked by Standard & Poor's decision to downgrade its ratings on Portugal, Spain and Greece - the latter's bonds are now junk status.

Economists have been critical of EU delays.

Citigroup economist Juergen Michels in London said speed was of the essence. "The first obvious step is to get the Greek aid package through very quickly," he said.

Afterwards, European leaders should "find provisions to support the banking sector", which is exposed to the risk of a Greek sovereign debt default, he added.

Meanwhile, prime minister George Papandreou warned of more "painful" decisions for Greeks amid violent protests yesterday and a warning from ratings agency Moody's of a possible "multi-notch downgrade".

"We must take historical decisions, however difficult and painful they are," Mr Papandreou said after meeting union leaders.

"No-one must have any doubt that we will do whatever it takes to save the country. ... We will not run from the fight."

Last night riot police fired tear gas and clashed with protesters outside parliament and the finance ministry in Athens. The clashes were not extensive and no arrests were reported.