Greece will ask European governments and the IMF on Friday to trigger billions of euros in emergency loans, a government source said, in what could be the largest state bailout ever attempted.

Market reaction was swift with the single currency climbing from a one year low against the dollar to $1.333 and stocks arresting a two day fall.

The source said Athens, under pressure after Greek bond yields hit 12-year highs on Thursday and imperiled the country's efforts to cut its 300 billion euro debt load, would request the 45 billion euro ($53.8-$60.5 billion) deal on Friday afternoon.

The prime minister is expected to make an announcement shortly, said the government official who declined to be named.

Prime Minister George Papandreou is visiting the remote Aegean island of Kastellorizo and is expected to make a statement there.

The premium investors demand to buy Greek 10-year government bonds rather than euro zone benchmark Bunds fell to 543 basis points versus 609 at Thursday's settlement close.

Greek two-year bond yields dropped to 10.159 percent, from a 12-year high of 12.263.

Some investors had expressed exasperation with the socialist government which, caught between punishing market forces abroad and Greek workers fearful of painful austerity measures, had delayed asking for help.

Papandreou, who won an election last year, has come under increasing pressure and a poll showed on Friday his support was declining.

Doubts about Greece's ability to avoid default intensified on Thursday when European Commission data showed its large public deficit was worse than feared and Moody's Investors Service downgraded its rating of Greek government debt.

The budget figures were announced as tens of thousands of Greek nurses, teachers and other public workers staged a one-day strike against the government's austerity measures.

Greeks fear the aid package will hit their living standards.

News of the announcement followed an intensified call from media for the government to activate the package.

The government is constantly one step behind the reality of the markets and the international circumstances. Today the country appears to be bankrupt, daily Kathimerini wrote in a column under the headline Time's up.

There is only one solution, immediately resorting to the EU/IMF mechanism.

(Editing by Mike Peacock)