By Renee Maltezou and Jan Strupczewski
BRUSSELS (Reuters) - Greece took a step back from the abyss on Monday when it presented new reform proposals that euro zone finance ministers cautiously welcomed as a possible basis for an agreement in the coming days to avert a looming default.
European stock markets and Greek assets leapt on hopes of a last-minute deal to ease a crisis that is threatening to drive Greece out of the euro and undermine the foundations of the European Union's single currency.
Leaders of the 19 nations that share the euro arrived for an emergency evening summit in Brussels voicing guarded optimism that the Greek proposals, including higher taxes and moves to curtail early retirement, could lead to a deal this week.
Cash-starved Greece must repay the International Monetary Fund 1.6 billion euros by June 30 or be declared in default, potentially triggering a bank run and capital controls.
Jeroen Dijsselbloem, chairman of the Eurogroup of 19 euro zone finance ministers, described the new Greek document as comprehensive and "a basis to really restart the talks" but said talks in the next days would show whether the numbers added up.
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"We will work very hard in the next few days - the (lending) institutions with the Greek government - to get that deal this week," he said.
European Council President Donald Tusk, who called the summit to try to break the deadlock, told reporters there had been promising developments and leaders should show the way forward to avoid a worst-case "uncontrollable chaotic Grexit" while letting experts thrash out the details.
He called for an end to the "blame game" between Athens' young left-wing Syriza government, which has triggered the crisis by scrapping the austerity measures that were a condition of Greece's bailouts, and its creditors, led by Germany, which refuse to keep funding Greece without being sure that its public finances are sustainable.
MERKEL CAUTIOUS
German Chancellor Angela Merkel, facing strong public resistance to any further aid, was more cautious than Tusk on arrival at the summit.
"After the Eurogroup meeting there is no basis for a decision, so this can only be an advisory summit," she said. Her finance minister, Wolfgang Schaeuble, a hardliner on Greece, earlier told reporters he had seen nothing new from Athens.
But other leaders sounded more upbeat. French President Francois Hollande told reporters:
"I hope the work conducted in the past few days by Greece and the institutions lays the foundation for an agreement that should be reached as soon as possible ... There are improvements, even if not everything has been resolved."
U.S. Treasury Secretary Jack Lew urged Greek Prime Minister Alexis Tsipras in a phone call to make a "serious move" at reaching a deal with its creditors to avert "immediate hardship for Greece and uncertainties for Europe and the global economy".
Dijsselbloem made clear that Greece's last-minute submission of its proposals meant the finance ministers could not make any decision until Greece thrashed out details in the next few days with its international creditors: the European Commission, the European Central Bank (ECB) and the International Monetary Fund.
With anxious savers continuing to withdraw cash, though apparently in smaller amounts on Monday than last week, the ECB increased its emergency liquidity assistance to Greek banks for the third time in a week.
But after months of acrimony, the positive mood music in Brussels gave investors hope that an agreement might be near.
European shares surged [.EU] and the Greek stock market <.ATG> jumped 9 percent while the borrowing costs of Italy, Spain and Portugal - the countries most likely to be hit if Greece headed for the euro zone exit - fell sharply. [GVD/EUR]
The DAX index of leading German shares closed up 3.9 percent and France's CAC 40 stock index was up 4.1 percent on the day.
TAX AND PENSION REFORMS
In its proposal, Greece offered to raise the retirement age gradually to 67 and curb early retirement. It also offered to reform the value-added-tax system to set the main rate at 23 percent. And it promised additional taxes on business and the wealthy.
Economics Minister George Stathakis told the BBC that Athens had avoided crossing "red lines" set by Syriza, since it would not cut pensions or wages or raise the VAT rate on electricity.
But in an example of the anger that Athens has caused in northern Europe, Hans-Peter Friedrich, deputy parliamentary floor leader for Merkel's conservatives, said there was no point in "dragging out a bankruptcy for political reasons".
"We do the greatest harm to Europe if we lie to ourselves," he said, adding that he was sceptical that the Greek government would provide adequate assurances to win German parliamentary support for further aid.
Tsipras held a series of meetings with central figures including ECB President Mario Draghi and IMF head Christine Lagarde before the summit but made no comment to reporters.
European Commission President Jean-Claude Juncker, a veteran EU dealmaker, gave Tsipras a warm welcome, taking him by the shoulders and patting him on the cheek. This contrasted to earlier this month, when a frustrated Juncker rebuked Tsipras for failing to observe the "minimum rules" of friendship.
Greece's central bank chief warned lenders last week to brace for a "difficult day" on Tuesday if the summit ended without a breakthrough, banking sources told Reuters.
But there were no immediate long queues or signs of panic outside Greek banks in the capital on Monday.
"I believe there will be a deal today. This is a normal visit to the bank," said one Greek saver outside a bank branch.
Thousands gathered in central Athens on Sunday to protest against a new round of cuts, while a demonstration in favour of staying in the euro was planned for later on Monday.
(Reporting by Karolina Tagaris, Angeliki Koutantou, George Georgiopoulos, Michelle Martin, Alastair Macdonald, Astrid Wendlandt, Jan Strupczewski, Lefteris Karagiannopoulos and; Andrius Sytas; writing by Paul Taylor and Matthias Williams; editing by David Stamp and Kevin Liffey)