Greece continued to resist market pressure for it to seek emergency aid from the EU and IMF, as the country's manufacturing base contracted sharply in February despite growing signs of upturn in the global economy.

After a frantic sell-off of bonds and shares this week due to growing doubts over a euro zone rescue plan, markets caught their breath on Friday, awaiting word from Brussels where EU officials were wrangling on the terms of any emergency loans.

The risk premium on Greek 10-year bonds over benchmark German bunds narrowed slightly and Greek bank shares rebounded by 2.3 percent after Thursday's 6 percent fall, but there was no sign that the crisis was easing.

We are seeing a correction after yesterday's selling pressure, which was overdone. There is buying of bonds today, said a treasurer at a large Greek bank.

Investors were taking profits, closing short positions or bargain-hunting, he said.

The question is how sustainable this rebound will be, said analyst Nikos Galoussis at Kappa Securities.

News that industrial output fell by 9.2 percent year-on-year in February while inflation spiked to 3.9 percent in March underscored the dire economic background to the fiscal crisis that has shaken confidence in the euro zone.

GOLDMAN SEES AID PROGRAMME

The economy is officially forecast to contract by 2 percent this year after a similar fall in 2009, but some economists now expect the decline to be even sharper, making it harder to reach a promised budget deficit cut of four percentage points of gross domestic product.

Finance Minister George Papaconstantinou said bond spreads of more than 400 basis points -- which mean Greece would have to borrow at more than 7 percent -- did not reflect the real state of the economy or the government's austerity measures.

He said the EU was currently working to nail down specifics of a last-resort aid mechanism for Greece, but the government would not ask for activation of the rescue plan.

Asked by reporters after meeting Prime Minister George Papandreou whether Greece wanted the aid plan activated, he said: No. This issue has not been raised... we have said that Greece does not intend to use this mechanism.

However, Goldman Sachs chief European economist Erik Nielsen said in a note issued on Thursday he expected an 18-month aid program by the end of April worth 20-25 billion euros, co-financed by the euro zone and the International Monetary Fund.

The IMF will charge a bit over 3 percent and the Europeans probably 4-5 percent, Nielsen wrote.

Unfortunately, that'll cover only a small share of the government's total financing requirement for the 18 months, so the overall debt sustainability will hinge on implementation of the conditionality -- and on a multi-year extension of concessional financing, he said.

Greece needs to borrow about 11 billion euros by the end of May to finance maturing debt and interest payments. Its overall borrowing requirement for this year is 53 billion euros.

The next test will come on Tuesday, when it holds an auction of 12-month Treasury bills.

European Central Bank president Jean-Claude Trichet said in newspaper interview that Greece was not at the point where it needed a financial bailout and default is not an issue.

At this moment in time, I don't expect this mechanism to be necessary, he told Italian business daily Il Sole 24 Ore.

Trichet added to market confusion on Thursday by saying that unsubsidized lending to Greece by euro zone governments simply meant at rates no lower than those at which creditor countries finance themselves.

EU sources say Germany and the Netherlands have argued that emergency loans should be at close to current market rates to avoid any moral hazard.

No official statement was expected after a two-day meeting of deputy finance ministers and central bank officials in Brussels, but European Union officials sought to reassure markets that a financial safety net for Greece was in place.

European Council president Herman van Rompuy told French daily Le Monde that the EU stood ready to help Athens if asked, and that Europe and the IMF were on the same wavelength.

A German Finance Ministry spokesman said no one should doubt that the euro zone and the IMF would help Greece if needed, although it had not requested help.

But the head of France's Financial Markets Authority, Jean-Pierre Jouyet, said markets had been unsettled by two months of EU wrangling over the terms of any rescue.

Two months of negotiations, that's two months during which the markets are playing with a country, Jouyet told France-Inter radio. I understand the technical difficulties... (but) the markets have the feeling that there isn't enough political will..

(writing by Paul Taylor; additional reporting by Sophie Hardach in Athens and Jeremy Gaunt in London; editing by Ron Askew)