France, Belgium and Luxembourg agreed to a rescue plan for Dexia SA on Sunday ahead of a planned board meeting expected to decide on a break-up of the first lender to fall victim to the euro zone crisis.

French Prime Minister Francois Fillon, his Belgian counterpart Yves Leterme and Luc Frieden, the finance minister of Luxembourg, where Dexia has a large presence, had found a solution for the stricken Franco-Belgian bank, Leterme's office said early Sunday afternoon.

The three governments have agreed to put a proposal to the board which fits completely with the goals of the Belgian government, which means to take over Dexia Bank Belgium , secure it and turn it into a very safe bank, Leterme said after two hours of talks at Egmont Palace in Brussels -- also the site of negotiations for a previous Dexia rescue in 2008.

Details of the rescue were not revealed while Dexia's board met in Brussels to approve the plan. It was forced to seek government help this week after a liquidity crunch hobbled the lender and sent its shares down 42 percent over the past week.

At stake in the talks is how much each government will have to contribute to help wind down Dexia, a thorny subject given that Belgium and France are already struggling to contain large deficits.

The need to recapitalize banks is emerging as another strain for European governments whose budgets are already stretched. Belgium had a debt-to-gross domestic product ratio of 96.2 percent last year, lower only than Greece and Italy among euro zone members and on a par with bailout recipient Ireland.

The burden of bailing out Dexia led ratings agency Moody's to warn Belgium late on Friday that its Aa1 government bond ratings may fall.

The negotiations to dismantle Dexia, which has global credit risk exposure of $700 billion -- more than twice Greece's GDP -- are being watched closely for signs that Europe might be capable of decisive action to resolve its banking crisis.

I am convinced that it is possible ... by tomorrow morning to have an agreement in which Belgium resolves the issue without pushing up the debt level of our country too high, Leterme told Belgian television before Sunday's talks.

Dexia, which used short-term funding to finance long-term lendings, has found credit drying up as the euro zone debt crisis worsened. This problem has been exacerbated by the bank's heavy exposure to Greece.

Dexia's near collapse stoked investors' anxieties about the strength of European banks and coincided with growing talk about coordinated EU action to recapitalize banks across the continent.

French President Nicolas Sarkozy and German Chancellor Angela Merkel promised on Sunday to unveil a new crisis comprehensive package by the end of the month, but offered no details and papered over differences on how to shore up banks.

Germany and France have so far been split over how to recapitalize shaky European banks. Paris wants to tap the euro zone's 440 billion euro ($594 billion) European Financial Stability Facility (EFSF) to recapitalize French banks, while Berlin is insisting the fund should be used as a last resort.

Dexia's overhaul will likely see its French municipal financing arm split from the group and merged with French state bank Caisse des Depots and Banque Postale, the French post office's banking arm.

The Belgian government will nationalize Dexia's largely retail banking business in Belgium. Media reports said it would have to pay 4 billion euros to do so.

Healthy units, such as Denizbank in Turkey, will be sold.

A 'bad bank' supported by state guarantees will hold 95 billion euros in bonds, including 12 billion euros of sovereign debt of weaker euro zone periphery nations.

Including 7 billion euros of securities linked to U.S. mortgages, France and Belgium may need to provide guarantees to cover up to 200 billion euros of assets, which would be more than 55 percent of Belgian GDP.

The key issues are how to divide up the 'bad bank' asset guarantees, how much Belgium should pay to nationalize Dexia's Belgian banking business and whether others, such as Belgium's regions, would be involved in its purchase.

Dexia's shares have been suspended since Thursday afternoon.

(Writing by Marie Maitre, Christian Plumb and Philip Blenkinsop; Editing by Hans-Juergen Peters, Sebastian Moffett and Richard Chang)