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Cyprus bailout talks go to the wire

Nicosia - Cyprus still had no final agreement early on Sunday on the terms of a bailout deal to save its eurozone economy from imminent bankruptcy as its leaders braced for make-or-break talks in Brussels.

Cypriot officials huddled with EU and IMF representatives until nearly midnight (22:00 GMT) on Saturday in a bid to find a way to meet their conditions for unlocking €10bn in desperately needed emergency loans by a Monday deadline.

The so-called troika of the EU, IMF and European Central Bank is demanding that Cyprus raise €5.8bn in return and shrink its bloated financial sector.

Privately run Mega TV said the government had reached agreement with troika representatives on most elements of a deal but that the final stumbling block might not be settled before the crunch 17:00 GMT talks between President Nicos Anastasiades and EU chiefs.

EU Economy and Euro Commissioner Olli Rehn welcomed the "progress" made by Cyprus towards meeting the troika's demands and vowed "intensive work and contacts" through the night to try to a reach deal before the Brussels meeting.

"It is essential that an agreement is reached by the Eurogroup on Sunday night," Rehn said.

The Cypriot parliament has already approved a painful package of banking reforms and there was reluctant consensus on a raft of other revenue-raising measures to put to eurozone ministers.

A swinging restructuring to the island's second largest lender Laiki (Popular Bank) passed by MPs on Friday will see all deposits over €100 000 put into a "bad bank" where they will be tied up for years and may never be recovered in full.

But negotiations stumbled on troika demands for a substantial levy on deposits above the same threshold in Bank of Cyprus - the island's largest lender with more than a third of all deposits - to avoid it being subjected to a similar restructuring.

Mega TV said the government had finally agreed to a 20% haircut on Bank of Cyprus and a 4% levy on other banks, the latter to pay for the €600m Laiki pension fund lost in its restructuring.

It said the haircut would be in the form of a bond or share swap in a bid to get it through parliament.

MPs flatly rejected an earlier plan for haircut on bank deposits when it was put to them last Tuesday.

The Cyprus president has invited all the island's party leaders to accompany him to Brussels in a bid to convince eurozone ministers that there will be no repetition of that defeat.

Mega TV said the remaining sticking point was over whether Bank of Cyprus should absorb the "good bank" carved out of Laiki or they should remain two separate lenders as argued for by the government.

The EU's Rehn acknowledged that Cypriot leaders had faced hard choices to try to limit the damage to the island's economy from the blow to its huge banking sector.

"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available," he said.

"There are only hard choices left."

Cyprus negotiators had been desperate to avoid Bank of Cyprus being subjected to the same bitter pill imposed on Laiki.

Laiki economist Yiannis Tirkides said that savings hived off into the bad bank would be "blocked" for years while it absorbs the lender's non-performing loans, which he put at about 30% of all Laiki lending.

The threat to the bank's pension fund sparked an angry march by bank staff on parliament on Saturday and a threat of industrial action.

"If you don't secure our pension fund, we will go on strike from Tuesday," when branches are finally scheduled to reopen after a closure of more than a week, banking union chief Loizos Hadjicostis said.

The strike threat was a serious one for an economy reeling from the prolonged bank closure that has seen many businesses accept only cash transactions.

The streets of Nicosia were otherwise largely deserted on Saturday, as anxious residents waited to see which way the crisis turns.

"People don't know if they will have money tomorrow or the day after," said Yiorgos Andoniou, a jobless 57-year-old.

"We are in this situation because... we were living beyond our means for 25 years and now the bill has come," said a woman identifying herself as Catherine.

"Eventually we'll tighten our belts and go back to the practical and hard-working people that we were before."

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