(Reuters) - Japan's Sharp Corp and its main banks are set to agree on Thursday to a $1.7 billion rescue and restructuring plan that will likely include a promise to split off its ailing smartphone display business, a person involved in the discussions said.

As part of its second major bailout in three years, Sharp's lenders, Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ, will inject a combined 200 billion yen ($1.7 billion) in a debt-for-equity swap, the source said, declining to be identified as he is not authorized to speak publicly on the matter.

The loss-making company will also pledge to scale back its North American television operations and cut around 5,000 jobs, or 10 percent of its global workforce, the source said.

The source said the LCD operations, while likely to be split off to improve transparency and accountability, would continue to be owned by Sharp for now.

Haggling over the extent of job cuts and restructuring had held up the talks, with the company initially reluctant to split off the LCD division, which accounts for 30 percent of Sharp's sales, company and banking sources have previously said. Analysts have said splitting off the division could pave the way for a deal such as a merger with rival Japan Display Inc - a possibility which Sharp has denied considering.

While relief that a deal with lenders was in its final stages boosted Sharp's shares 4.5 percent to their highest level since December, the plans are likely to viewed as not going far enough by many investors.

"The restructuring is likely to stop the bleeding in terms of losses and cash flow, but it's not going to resolve the basic problems," said Yasuo Sakuma, executive officer at Bayview Asset Management.

"It's difficult to assess positively since we're not seeing any strategy toward future growth."

Sharp spokeswoman Miyuki Nakayama said the company was considering various options but nothing had been decided, adding that more will be revealed in May, when it releases a new business plan.

Representatives for the lenders declined to comment. Mizuho is a unit of Mizuho Financial Group Inc and Bank of Tokyo-Mitsubishi UFJ is part of Mitsubishi UFJ Financial Group Inc.

The parties are unlikely to make any announcement on Thursday after CEO Kozo Takahashi meets with bankers to finalize a deal, the source said.