Greece and private bondholders will begin thrashing out a deal on Thursday to halve its public debt, a key pillar of a bailout plan to save the country from bankruptcy and ejection from the euro zone, sources said on Tuesday.

While politicians debate in parliament the degree of support they are prepared to give a new coalition government to implement the fresh bailout, Greek and EU negotiators are to launch talks to flesh out the deal with the International Institute of Finance (IIF) which represents banks.

Negotiations between the IIF, the EU and the IMF will start on Thursday. There may be some preparatory talks on Wednesday. A second meeting will follow, said a source at a major Greek bank who asked not to be named.

The aim is to have a conclusion soon on the final proposal that will be submitted to the private bondholders. There is no specific deadline for this, the source said, adding that the main task was to convince foreign banks who hold two-thirds of the bonds.

A source familiar with the plans said IIF Managing Director Charles Dallara and Deutsche Bank's Josef Ackermann, who chairs the group, would both attend.

The new bailout, Greece's second financial rescue in little more than a year and worth a total 130 billion euros in return for more austerity measures, was agreed by euro zone leaders at a summit last month.

The deal would halve the country's 200 billion euros of obligations to private bondholders, recapitalize Greek banks and provide Athens with loans to service interest payments and running costs such as wages and pensions.

The EU has made it condition in releasing a 8 billion euro loan that all coalition parties sign a commitment to the bailout terms. But the leader of the conservative New Democracy party says he will not to sign, endangering the tranche needed to avoid default by mid-December.

BOND PLAN

New technocrat prime minister Lucas Papademos said on Monday Greece would soon make an official announcement to begin talks on the bond swap. His government is expected to receive a parliamentary vote of confidence on Wednesday.

Greek newspaper Kathimerini reported on Tuesday that Greece would propose to bankers that for every 100 euros Greece owes, bondholders should receive between 10 and 20 euros in cash, depending on the maturities of the bonds they hold.

Banks, represented by the IIF, are likely to propose that the face value of 141 billion euros of bonds be cut by 50 percent, Kathimerini said.

The remaining debt would be exchanged for bonds guaranteed by the euro zone's EFSF rescue fund and maturing in 22 years, with a fixed coupon of 7 percent or a floating-rate coupon of between 5.5 percent and 7.5 percent, the paper added.

An alternative proposal by the IIF, Kathimerini said, sets out a 37 percent haircut on 65 billion euros of bonds, with the remaining debt to be swapped for new, 15-year bonds paying a coupon of 8 percent.

Under both IIF proposals, the coupon would be linked to Greece's GDP, Kathimerini said.

Greece has been shut out of international markets for long-term financing for almost two years but occasionally taps the T-bill market. On Tuesday it auctioned 1.3 billion euros of three month Treasury bills, paying 4.63 percent -- broadly unchanged from the last sale on October 18.

AUSTERITY BACKLASH

Polls show new premier Papademos enjoys the support of three in four Greeks, but he will be conscious of the dangers of introducing yet more painful tax rises and spending cuts in return for European Union and International Monetary Fund loans.

The conservative New Democracy party, on which Papademos' government partly depends, said again on Tuesday that it would not accept additional austerity measures as the price for the EU's signoff on the proposed 130 billion euro bailout.

New Democracy MP Nikos Dendias said his party would help Greece avoid disaster but echoed leader Antonis Samaras in saying that Greek sovereignty could not compromised.

Dictats from Brussels cannot be a legitimate policy, he told parliament during a three-day confidence debate.

Greece's economy slowed its steep slide in the third quarter but still shrank 5.2 percent from a year earlier, Eurostat data showed, as the debt-choked economy continued to plummet in a recession that looks set to head into a fifth year. The economy had contracted 7.4 percent between April and June.

Greek public sector workers are due to walk off the job for three hours on Tuesday in protest against measures passed in October to cut jobs, salaries and pensions, while private sector union GSEE is considering nationwide strikes later this month when the budget comes to parliament.

(Additional reporting by Philipp Halstrick in Frankfurt; Writing by Ben Harding; Editing by Catherine Evans)