ECB Governing Council member Axel Weber said on Thursday the impact of any Greek debt default on other states would be incalculable and urged quick approval of an aid package to prevent market upheaval and contagion to other states.

A leading German parliamentarian expressed confidence that the Bundestag could move quickly to approve aid despite deep reservations in Germany about helping Greece, as momentum toward a long-delayed rescue appeared to build.

Greece's borrowing costs fell and the euro was off its one-year low on optimism over a bailout. However, Spain's risk premium rose after S&P's debt rating downgrade.

Weber, who is president of the German Bundesbank, said in German daily Bild a Greek debt default would have incalculable consequences for financial markets and other states.

He also dismissed calls by some in Germany for Greece to be expelled from the 16-nation currency union, saying there was no legal basis for such a move and that it could spark huge economic and financial upheaval.

In the current situation, the impact (of a Greek default) on financial markets and other states would be incalculable, Weber said. Financial aid tied to tough conditions is for all parties concerned the best solution.

EU monetary affairs commissioner Olli Rehn was scheduled to make a statement at around 6:15 a.m. ET.

Greece is in discussions with the European Union and International Monetary Fund (IMF) on a multi-year rescue package that some officials have said could total up to 135 billion euros ($180 billion).

The world's leading financial policymakers, including IMF Managing Director Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet, gathered in Berlin on Wednesday and stressed the need for quick action to help the euro zone's financial weakling.

MERKEL BACKS RESCUE

After resisting a Europe-wide push for a quick rescue in past weeks, German Chancellor Angela Merkel has also thrown her weight behind a deal that EU members hope will prevent a debt crisis spreading to other euro zone members like Spain and Portugal.

The euro currency, which fell to a one-year low of $1.3114 on Wednesday, pushed back above $1.32. But yield spreads between benchmark German bonds and those of fiscally-strapped euro-zone countries like Spain remained under pressure.

In another sign of market relief, Greek bank stocks surged. The Athens bourse's banking index was up 5.6 percent to 1,802.88 points, outperforming the Athens general index which was gaining 3.2 percent.

Investors anticipate that Greece will get a much bigger aid package than previously expected, in time, said Takis Zamanis, a trader at Beta Securities.

Volker Wissing, finance policy spokesman for Merkel's coalition partners the Free Democrats (FDP), told ARD public television that Germany's lower house of parliament was capable of approving an aid deal quickly.

A careful discussion and speedy discussion are not mutually exclusive, Wissing said.

Spain's Foreign Minister Miguel Angel Moratinos also stressed the need for quick action to help Greece.

German Finance Minister Wolfgant Schaeuble underlined concern over the volatility of financial markets, telling reporters in Berlin: No market participant is prevented from not taking ratings agencies too seriously.

Ratings agency Standard & Poor's cut Spain's credit rating on Wednesday, a day after downgrading Portugal and slashing Greece to junk status. The move hit the euro and European shares, underscoring the risks of contagion in the 11-year old currency zone.

An Italian bond sale seen as the first of the euro zone peripheral issuers to be tested after the S&P downgrades may have eased some fears of a rapid contagion.

This is a big vote of confidence from the market, Peter Chatwell, Rate Strategist at Credit Agricole, said. Both of the auctions have healthy bid cover ratios.

Weber dismissed a discussion, launched by some German politicians, about forcing banks to accept a discount on their holdings of Greek bonds as part of any rescue package as counter-productive.

He said Greece could turn the corner if it moved to implement reforms of its economy in a decisive and credible way.

But the risks to an aid package were highlighted by a German professor who has vowed to challenge the rescue in the country's top court.

We expect that the Constitutional Court will not reject our suit, because our initiative has unbelievably big support, Joachim Starbatty, an economist and professor at Tuebingen University, told Czech newspaper Mlada Fronta Dnes.

How the court might respond to a challenge is uncertain. It could suspend German aid while it assessed its legality, but legal experts say that due to the matter's urgency, the court could also allow aid to flow while it looked into it.

History also shows that the court could move quickly to make a ruling on a challenge. (Additional reporting by Dave Graham in Berlin, Jo Winterbottom in Milan, Jason Hovet in Prague)

(Writing by Noah Barkin/Ralph Boulton; Editing by Janet McBride)

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