Greece has sealed a deal with the European Union and the IMF that opens the door to a multi-billion euro financial bailout of the heavily indebted euro zone member, a senior government official said on Sunday.

Greek Prime Minister George Papandreou was expected to announce the deal, which would be the first such rescue of a member of the 16-nation currency bloc, at a televised cabinet meeting.

A meeting of euro zone finance ministers, scheduled for 1400 GMT in Brussels, is due to give its go-ahead to the aid, which could reach up to 120 billion euros ($160 billion) over three years and will come in return for tough austerity measures.

Greece and its international backers hope the deal can stem a crisis that has shaken markets worldwide, stoked fears of contagion to other euro zone members like Portugal and Spain, and exposed deep divisions in the 11-year old currency bloc.

We agreed on the deal with the EU and the IMF, the senior government official told Reuters, requesting anonymity.

On Saturday, thousands marched in May Day demonstrations in Athens shouting slogans against austerity measures they say will hurt the poor and drag the country further into recession.

No to the IMF's junta!, protesters chanted, referring to the military dictatorship which ruled Greece from 1967 to 1974. Hands off our rights! IMF and EU Commission out!, the protesters shouted as they marched to parliament.

More than half of Greeks say they will take to the streets if the government agrees to new austerity measures, according to an ALCO poll released on Friday by the newspaper Proto Thema.

HIGH DRAMA

All other steps taken so far by Greece and the EU have failed to calm months of market jitters that have pushed the country's borrowing costs to record highs.

Although Greece only makes up about 2.5 percent of the euro zone's economic output, its woes have shaken confidence in the currency bloc and deepened global fears about sovereign debt built up during the financial crisis.

Speaking at the annual shareholder meeting of his company Berkshire Hathaway Inc on Saturday, famed U.S. investor Warren Buffett said the Greek crisis had the potential for high drama.

I really don't know how this movie ends, and I try not to go to movies like that, Buffett quipped in Omaha, Nebraska.

French Economy Minister Christine Lagarde said on Saturday she expected a package of 100-120 billion euros ($133-$160 billion) to help Greece out of its debt crisis.

The bailout will come in return for draconian budget cuts. Greece is expected to pledge to narrow its budget deficit, which totaled 13.6 percent of GDP in 2009, by 10 percentage points -- or over 20 billion euros -- over the course of 2010 and 2011.

A public sector hiring and pay freeze is likely to be extended through 2012 and the mandatory retirement age for men is expected to be increased to 67 years from 65.

Germany, which insisted on a role for the IMF and pressed Greece to commit to bolder budget cuts before committing to aid, has said European banks will also contribute to Greece's bailout, a move that could make it easier for EU governments to win the backing of their own taxpayers for a bailout.

Economists say that if euro states fail to engineer a rescue that calms markets, they could end up footing a bill of half a trillion euros ($650 billion) to save several nations.

Both Portugal and Spain saw their debt downgraded by ratings agencies this week and could become targets for the market unless they tackle their deficits swiftly.

(Writing by Noah Barkin; editing by David Stamp)

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