German financial and industrial firms will contribute to a multi-billion euro bailout for Greece, a senior banking source said, as talks to secure the aid in return for tough Greek budget cuts edged toward a deal.

The source, who was familiar with the plans but asked not to be named because the details were still being worked out, told Reuters on Friday the German private sector consortium had pledged between 1 billion and 2 billion euros toward the rescue package.

Efforts were being coordinated by Deutsche Bank Chief Executive Josef Ackermann.

The European Commission said talks to finalize the overall rescue package could be wrapped up by Saturday.

Greece is preparing severe austerity measures to cut around 24 billion euros of budget deficit and unlock European Union and IMF aid of up to 120 billion euros, which investors hope will stop the debt crisis from sinking other fragile EU economies.

But it faces a battle with unions who have been angered by the scale of the cutbacks.

Unions say the International Monetary Fund asked Athens to raise sales taxes, scrap bonuses amounting to two extra months pay in the public sector and accept a three-year pay freeze.

They have called a series of strikes in the days ahead.

Social unrest could prevent socialist Prime Minister George Papandreou's government from pushing through the planned reforms. But Papandreou said on Friday the measures were vital to securing aid.

Many talk about red lines. The only red line is the country's interest. Today the top priority is the survival of the nation. This is the red line, he told parliament.

The measures we must take, which are economic measures, are necessary for our country's protection, for our future, for us to be able to stand on our feet.

German politicians have said the aid package could be worth 100-120 billion euros ($133-160 billion) over three years, against an original plan for 45 billion euros of aid in 2010.

Euro zone finance ministers will meet on Sunday to discuss Greece and held a preliminary conference call on Friday, French Foreign Minister Bernard Kouchner told Reuters.

Private sector support for Athens may anger some in Germany, which has expressed deep reservations about bankrolling a profligate Greece because it misled partners over its catastrophic finances.

What's decisive now is that Greece sticks to the rules of the Stability Pact and the data from Greece are accurate, and that Greece takes the austerity measures seriously -- and that appears to be the case, Finance Minister Wolfgang Schaeuble said.

Hopes of a quick Greek aid deal helped push up global equities on Friday and the euro was 0.5 percent higher on the day at $1.3301. The spread between Greek and German 10-year government bond yields narrowed.

The background does seem to be definitely improving for the euro zone's public debt crisis, said Mike Lenhoff, chief strategist at Brewin Dolphin.

But the euro was still on track to fall some 1.5 percent for the month and concerns remained over euro zone debts.

Economists said euro zone states could end up footing a bill of half a trillion euros ($650 billion) to save several nations if they failed to engineer a Greek bailout that calmed markets.

But European Commission President Jose Manuel Barroso said on Friday the Greek rescue package will prevent the crisis from spilling over to other countries.

It is about safeguarding the overall financial stability of the euro zone, he said, adding it would prevent further possible effects of contagion.

Markets have worried that nations like Portugal and Spain -- whose debts were downgraded by ratings agencies this week -- could be threatened unless they tackle their deficits swiftly.

Portugal's main opposition leader, Pedro Passos Coelho, said his Social Democratic Party (PSD) supports the government's austerity plan and hopes to agree a pact that may allow a cut of this year's budget gap by an additional 1 percentage point.

His comments were likely to reassure investors concerned about Lisbon's ability to tackle its deficit.

In Spain, unemployment rose to a record high above 20 percent in the first quarter, stifling attempts to recover from recession, but Economy Minister Elena Salgado said Spanish debt was under control and Madrid would not have to seek aid.

Our debt is clean, and we will not have to ask for help, she said.

ARMAGEDDON IS COMING

The Greek talks are being closely watched for details on whether the aid will start in time for Greece to refinance an 8.5-billion-euro bond coming due on May 19 and if the deal will be big enough to handle Athens' 300-billion-euro debt pile.

The planned austerity measures include cuts aimed at Greece's system of public wage allowances, which often include generous extra pay for activities such as using computers or getting to work on time.

These are primarily meant to keep base salaries and pensions low, and a 5-15 percent cut could save the state about 300 million euros a year.

More measures are bound to meet resistance. Opinion polls show a majority of Greeks oppose outside aid and expect the rescue package to hit living standards

Armageddon is coming. The situation caused by speculative mechanisms will be tackled only because the Germans have realized the domino effect that would have followed, Greece's conservative daily newspaper Eleftheros Typos said.

But the lenders are setting the terms, and they are incredibly tough. At least for three years they will drink our blood. And this is not an exaggeration.

(Writing by Dominic Evans; editing by Sonya Hepinstall)

Germany