By Paul Taylor and Paul Carrel
DAVOS, Switzerland (Reuters) - Euro zone finance officials voiced optimism on Friday that a deal to avert a disorderly Greek default was imminent and that key building blocks to resolve Europe's sovereign debt crisis are gradually fitting into place.
Europe's top economic official said an agreement between the Greek government and its private creditors on voluntary losses for bondholders would be complete within days and the euro zone was making progress on strengthening its financial firewalls.
"We are very close to a deal, if not today then over the weekend and preferably in January, not February. We are very close," European Economic and Monetary Affairs Commissioner Olli Rehn told the World Economic Forum in Davos.
The euro strengthened against the dollar and safe haven German bond futures fell back after Rehn's comments. Italy's six-month borrowing costs fell below 2 percent at an auction, their lowest since May, in another sign of easing bond market tensions.
German Finance Minister Wolfgang Schaeuble, speaking on the same panel as Rehn, said crafting a new rescue package for Greece was not easy because of past slippage in its performance, but it would be done in the coming days.
"We don't expect a default in Greece," he said. However, he cautioned that Athens would have to meet commitments to economic and fiscal reform that it had not delivered over the past two years and warned against giving Greece the wrong incentives.
The emerging private sector bond swap deal seems set to leave a funding gap of 12-15 billion euros to bring Greece's debt down to a level of 120 percent of annual output regarded by the IMF as sustainable, EU officials say.
Rehn and Jean-Claude Juncker, chairman of the 17 euro area finance ministers, have both said European governments and institutions may have to increase their support for Greece to make up the difference.
Spanish Economy Minister Luis de Guindos said the European Central Bank should not have to take a writedown on its holdings of Greek government bonds, bought at a discount to calm bond markets, since that could impair its monetary policy.
The ECB's governing council is debating whether and how to contribute to a package for Greece and has not yet taken a decision. ECB sources said the bank opposes taking a haircut to avoid financing governments or setting a bad precedent, but many council members wanted to find a way to avoid making a profit on holding the bonds to maturity when others were taking losses.
Rehn said leaders of the 17-nation currency area would decide in the coming weeks whether to combine a temporary rescue fund for countries in difficulty with a new permanent bailout fund to give Europe more financial firepower.
By combining the 250 billion euros left in the temporary European Financial Stability Facility, a planned 500 billion euros of the permanent European Stability Mechanism and an additional 500 billion euros sought by the International Monetary Fund, "you can calculate in which ballpark we are talking."
IMF Managing Director Christine Lagarde, speaking to reporters in Davos, kept up pressure on the Europeans to boost their financial firewalls after making a strong plea in Berlin on Monday.
There were "big worries" around the world about what the euro zone would do going forward, she said.
U.S. Treasury Secretary Timothy Geithner praised a series of steps the euro zone was taking to overcome the crisis but warned of the risk of austerity fuelling a recessionary spiral and said Europe needed a bigger firewall to avert future crises.
"I think the Europeans recognize that the unfinished piece in that framework is building a stronger and more effective firewall," he said at another Davos session.
The United States, China and other major non-European economies have said the euro zone should commit more of its own money to crisis management before any increase in the IMF's fire-fighting resources.
If European countries committed to a more effective firewall, Geithner said he expected other economies in the IMF to act to support those efforts. Rehn said he hoped for progress at next month's G20 finance ministers' meeting in Mexico.
European ministers praised the ECB for flooding European banks with cheap, three-year liquidity last month to avert a looming credit crunch.
ECB lending had relieved pressure on euro zone banks and governments, but there is still much to do to spur growth, they said.
"The unlimited liquidity provided by the ECB's three-year LTRO has reduced pressure on European banks and will help confidence to return ... Now we have to think together about how we can support growth," French Economy Minister Francois Baroin said.
Baroin and De Guindos both said that in the longer term, the euro zone should issue joint bonds on behalf of its governments, once fiscal discipline had been more strictly enforced and gaps in member states' economic competitiveness narrowed.
(Writing by Paul Taylor, editing by Mike Peacock and Jon Boyle)