Greek party leaders laboured on Tuesday to agree on a new prime minister, with the rest of the nation and the EU clamouring for an immediate deal on a unity coalition to save the country's finances and end the chaos threatening the euro.

After early signs that a new national unity coalition could be formed quickly, the drive by the socialist and conservative parties to create a government that will rule only until February lost momentum.

Outgoing Socialist Prime Minister George Papandreou told his cabinet he hoped to have the name of a new prime minister by Tuesday night, a government source said, prolonging the agony for the Greek people desperate for political stability.

The deal has not been concluded yet but the prime minister seemed convinced that it would happen soon, a senior government official told Reuters, requesting anonymity.

Deputy tourism minister George Nikitiadis denied the negotiations were losing pace. I have the opposite feeling, that everything is going very well, things are going to be fulfilled pretty soon and we will start working in the next days with stronger momentum.

It is my feeling that by tonight we will have the name (of the coalition's leader), he said. We have made our resignations available to the prime minister.

Another minister said Papandreou had said farewell to his cabinet at the meeting.

So far the parties have agreed that a 100 day coalition should be set up to push a 130 billion euro (111 billion pound) bailout for Greece through parliament and that elections should be held in February.

A UNITY GOVERNMENT, RIGHT NOW

A national unity government, right now, Ethnos daily said on its front page. The country and society cannot endure this any more.

European Union politicians expressed their alarm in Brussels about how debt crises in Greece and Italy are shaking international confidence.

Europe is running dry on credibility and a solution to a high debt crisis must be lower debt. The responsibility for that falls with the country with high debt and that is obviously Greece and Italy, Swedish Finance Minister Anders Borg said.

Greece has repeatedly made promises to deal with its huge budget deficit and debt, only to fall short of fulfilling them, leading to exasperation in Brussels and EU demands that the new government spell out in writing precisely what it will do.

If Greece pushes through its euro zone bailout, it will indeed lower its debt but not only by exercising budget discipline: the bailout envisages a bond swap which will halve the value of banks' holdings of Greek government debt.

GREEKS DEMAND STABILITY

Ordinary Greeks also demanded a new government, replacing a socialist administration which descended into chaos.

If this government doesn't work out, we are lost, said Panagiotis Dimitriadis, 80, a public sector pensioner.

Dimitriadis has had his pension cut as the outgoing government imposed austerity demanded by Greece's international lenders, but he is still trying to help out his son and seven grandchildren.

Papandreou and New Democracy chief Antonis Samaras agreed on Sunday that the coalition should be formed, but little else.

Monday came and went without any accord on who will lead the coalition, despite a former vice president of the European Central Bank, Lucas Papademos, emerging as a frontrunner.

Frustration was also apparent in Brussels where officials said the new government had to show it was serious about implementing promises Athens has made to its EU and IMF lenders in return for the bailout agreed last month.

It is essential that the entire political class is now restoring the confidence that had been lost in the Greek commitment to the EU/IMF programme, said EU Economic and Monetary Affairs Commissioner Olli Rehn.

Papandreou caused chaos last week by calling a referendum on the bailout, a vote which would might have seen Greeks rejecting the package because of the austerity measures tied to it. Papandreou backed down, but was forced into agreeing to make way for the unity coalition.

BROKEN PROMISES

Weary of broken promises from Athens, Rehn said the coalition must express a clear commitment on paper, in writing, to the EU/IMF programme.

The stakes could not be higher. Greece faces bankruptcy in December when big debt repayments are due, unless it can get hold of more emergency funding soon.

For two years the EU has laboured to solve the problems of Greece, a very small part of the bloc's economy, leading to doubts about how it would manage if the debt crisis engulfed the far bigger Italian or Spanish economies.

Papademos remained a frontrunner for premier, although EU Ombudsman Nikiforos Diamandouros and Greece's envoy to the IMF, Panagiotis Roumeliotis, were also potential candidates.

Papademos oversaw the nation's adoption of the euro in 2002 as Bank of Greece governor before moving to the ECB, and is a well-known figure in European capitals.

Some Greek media speculated that he was setting tough conditions, demanding greater powers than Papandreou or conservative leader Antonis Samaras were prepared to give.

(Additional reporting by Dina Kyriakidou, George Georgiopoulos, Renee Maltezou, Tatiana Fragou and Angeliki Koutantou in Athens; Juliane von Reppert-Bismarck in Brussels; Writing by David Stamp; Editing by Peter Graff)

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