He predicted revenues would slump just 5 percent this year compared with a June forecast of 15 percent, citing the election of a stable government and signs of confidence from international lenders as reasons.

Accounting for about 16 percent of output and one in five jobs, tourism is vital for Greece's depressed economy. Its sandy beach resorts, azure waters and ancient temples are among its few strong cards.

Tourism revenues are expected to drop slightly to just over 10 billion euros from 10.5 billion euros in 2011, while arrivals are expected to reach 16 million this year from a record high of 16.5 million last year, Andreas Andreadis, head of Greek tourism association SETE, told Reuters.

Speculation about Greece being forced out of the single currency ahead of a tense election in June and fears that social unrest could break out scared many visitors off before the peak summer holiday season.

But the emergence of a pro-European Union government under conserva2tive Prime Minister Antonis Samaras and the absence of any violence or big protests helped draw back foreign visitors to the country's sun-drenched islands in July and August.

"Fears that Greece would leave the euro were overcome and the question marks vanished," Andreadis told Reuters. "It was also a quiet summer in terms of strikes," he said.

Talk that Greece's creditors could lose patience with Athens over its unfulfilled reform pledges, also dissipated as the European Union and International Monetary Fund resumed talks over the next stage of its bailout programme.

ON TOUR

Before the election, tourism businesses had expected a 10-15 percent revenue drop for 2012 and hoteliers and travel agents slashed prices to attract last-minute bookings.

In the first seven months of the year, tourism receipts declined at an annual pace of 7 percent to 4.923 billion euros, adding to the pressure on an economy now in its fifth year of deep recession.

Despite the recession and the depression at home, last year was good for tourism. About 1.5 million more tourists visited Greece, largely due to lower fares and political uprisings in rival holiday destinations Egypt and Tunisia.

A popular summer resort mainly for Germans and Britons for decades, Greece is now attracting increasing numbers of tourists from Eastern Europe, with these markets accounting for more than 17 percent of total arrivals, a trend which is expected to continue, Andreadis said.

He said social media had helped spread the word that any fears about Greece's stability were unjustified and he predicted a further improvement next year.

"We will soon announce our 2013 target and it will be significantly higher," he said.

(Reporting by Renee Maltezou. Editing by Jeremy Gaunt.)

• A Permanent Economic Emergency