Greece says lenders closer to debt compromise, IMF relaxes debt/GDP target

But other sources involved in talks between euro zone finance ministers and the IMF cautioned that the funding gap was far bigger than suggested by Greece, and the two sides were not on the verge of striking a deal to solve the euro zone's most intractable problem, they said.

Finance Minister Yannis Stournaras signalled a compromise was near by saying the IMF had agreed to declare Greece's debt viable if it is projected to fall to 124% of GDP in 2020, giving ground on its earlier target of 120%.

The Eurogroup of euro zone finance ministers has already agreed on measures to reduce Greek debt to 130% of GDP in 2020, Stournaras said. "That leaves a gap of 5-6 percentage points of GDP to be covered – about 10 billion euros," he told reporters in Brussels.

The EU and IMF are considering bringing the debt down through a combination of interest rate cuts and extension of maturities on the country's loans, plus a debt buyback and a plan under which the ECB would forego profits on its Greek bond holdings, a Greek finance ministry official told Reuters.

Teetering on the verge of bankruptcy, Greece is increasingly frustrated that its lenders are still squabbling over a deal to unlock fresh aid even though the government has pushed through unpopular austerity cuts that brought thousands on to the streets.

Athens says time is running out and that it needs its next installments of almost 44 billion euros in aid to recapitalise banks and stabilise its economy. Its next big debt repayment falls due in mid-December.

It expects the aid to be paid out in one installment, the government spokesman told Greek radio, playing down recent speculation that it could dribble out in bits.

The euro hit a three-week high against the dollar on growing optimism that Greece's lenders were close to an agreement.

A senior source involved in the negotiations confirmed that the IMF would now accept 124% as a target but was dismissive of the gap amounting to only 10 billion euros.

"There are still things missing to an agreement," the source said. "The 10 billion is too optimistic."

A Greek finance ministry official said the ECB could relinquish 9 billion euros of profits on the Greek bonds it holds, as part of the measures to bring debt in 2020 down from a previous estimate of 144% of GDP.

Other options include saving 8 billion euros from cutting the interest rate, extending maturities on Greek debt and spending 10 billion euros to buy back around 30 billion euros in debt at a deep discount.

According to current government projections, Greek debt is seen at 340.6 billion euros, or 175.6% of GDP at the end of 2012. It is expected to peak at 357.7 billion euros, almost 191%, in 2015.

According to a document circulated at the Eurogroup meeting, Greece's debt cannot be cut to 120% of GDP by 2020 unless euro zone member states write off a portion of their loans to Greece, which Germany has said would be illegal.

Many Greek retail bondholders are still angry about a debt restructuring earlier this year that imposed heavy losses on private holders of Greek debt.