By Renee Maltezou and Jan Strupczewski
BRUSSELS (Reuters) - Euro zone officials welcomed Greek concessions on Monday as a possible step towards a deal on averting a default, but politicians dismissed expectations of a breakthrough at a summit later in the day to secure the country's future in the euro.
Hopes rose on financial markets as the officials accepted the reform proposal for the first time as a "reasonable" basis for negotiating an aid-for-reforms agreement between Athens and its creditors at the EU and IMF.
But Germany, the biggest European contributor to Greece's bailout programmes, warned that the meeting in Brussels of euro zone leaders could be only "a summit of consultations" without a detailed technical agreement.
Chancellor Angela Merkel signalled that any settlement could take days to reach and her Finance Minister Wolfgang Schaeuble said he had seen nothing new from Athens, even though Greece faces a 1.6 billion euro repayment to the IMF on June 30 which it probably cannot make without help from its creditors.
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After months of acrimony, accusations and wrangling between Greece and its creditors, positive mood music in Brussels injected new hope that a long-awaited aid agreement might be near.
European shares surged and the Greek stock market jumped nearly 7 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.
In the proposal sent early on Monday, Greece moved to acquiesce to lenders' demands for tax increases and pension reform by offering to raise the Greek retirement age gradually to 67 and curb early retirements. It also offered to reform the value-added-tax system to set the main rate at 23 percent.
"This is now, for the first time, a reasonable paper on which you can have an informed and productive discussion," one euro zone official said. "I cannot predict it will lead to an agreement tonight, but it is what was expected in form and in substance from such a paper." the official said.
Greek Prime Minister Alexis Tsipras headed into a series of talks with figures including European Central Bank President Mario Draghi and IMF head Christine Lagarde before the summit which is due to start at 7 pm (1700 GMT).
European Commission President Jean-Claude Juncker, a veteran EU dealmaker, gave Tsipras a warm welcome after he arrived in Brussels, 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.
"NOTHING NEW"
Merkel held open the possibility of a deal. "There are still a lot of days in the week in which decisions can be taken," she told reporters in the eastern German city of Magdeburg.
But Schaeuble, who has taken a consistently hard line with Athens, was pessimistic. "There is nothing new beyond many trying to create expectations which are not supported by substance," he said. "Without substantial proposals which can be examined seriously, we can't seriously prepare a euro summit."
Other European ministers played down the prospect of an agreement at the summit, saying there was too little time for officials to examine the proposal
"There is always time, there is the will for a good agreement. Today an agreement is not possible," said Spanish Economy Minister Luis de Guindos. "We still need to analyse many details. There are many versions of the Greek proposal. I don't know which is the definitive one."
However, EU Economic Commissioner Pierre Moscovici said he was "convinced" that euro zone leaders would find a resolution on the basis of the latest proposal.
"If we get a deal tonight, that would be better, but if not, we'll need to set the foundation tonight so that a deal can be reached in coming days," French President Francois Hollande said in Paris before he was due to travel to the summit.
Underlining the urgent need for a deal on Monday, Greece's central bank last week warned lenders to brace for a "difficult day" on Tuesday if the summit ended without a breakthrough, banking sources have told Reuters.
The country could be forced to impose capital controls within days to stem the outflow of billions of euros from banks by savers fearing they could be stuck with a sharply devalued new currency should Greece be forced out of the euro.
There were no immediate long queues or signs of panic outside Greek banks in the capital on Monday. The ECB, which has kept local lenders afloat with infusions of liquidity, raised its emergency funding once more.
"I believe there will be a deal today. This is a normal visit to the bank," said one Greek saver outside a bank branch.
An exit from the euro would create economic dislocation in Greece and severe consequences for its banks' liquidity and solvency, which could lead to the banking system being nationalised, credit ratings agency Moody's warned in a report on Monday.
NO FEAR OF BLACKMAIL
Comments by Greek Deputy Labour Minister Dimitris Stratoulis on a morning news show underscored the tightrope Tsipras must walk to reach an agreement that will win over both the creditors and his own leftist Syriza party.
"We are not afraid of blackmail, and our priority is the public interest," Stratoulis, a Syriza hardliner, told Antenna television. "Let's see if there will be a deal tonight."
Syriza stormed to power in January promising to roll back years of austerity it says has worsened Greece's plight.
Thousands gathered in central Athens on Sunday to protest against a new round of cuts, which is expected to be countered by a demonstration in favour of staying in the euro 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 Matthias Williams; editing by David Stamp)
