With the 2000 GMT deadline for acceptances nearing and holders of at least 57 percent of the total 206 billion euros in outstanding debt already committed, there appeared to be growing confidence in Athens that the exchange would go through.

"The pace of responses to the bond offer is good, the percentage of bondholders tendering voluntarily is very high," a government official, who spoke on condition of anonymity, told Reuters. "It is going well, we are optimistic," he said.

A senior Greek finance ministry official told Reuters the government was hopeful that well over 75 percent of eligible bonds would be submitted, easily clearing the original minimum threshold it had set for the deal to proceed.

Some hedge funds and several Greek pension funds were holding out but the high level of acceptances well before the deadline suggested that the deal was progressing smoothly despite initial warnings of a low take-up.

The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the 130 billion euro ($170 billion) bailout agreed last month and ministers will decide whether to clear the package in a conference call on Friday afternoon.

Athens, totally reliant on international support to stave off a default that could set off a severe banking crisis across the euro zone, has asked its private sector creditors to accept steep losses on their Greek bond holdings.

Investors are being asked to give up almost three quarters of the value of their holdings in return for new Greek bonds in a bid to cut a public debt burden that amounts to around 160 percent of Greece's gross domestic product.

Provided it reaches a two thirds threshold of those who respond to the offer, Athens has said it will impose collective action clauses (CAC) that would allow it to impose the deal on most of the remaining bond holders.

RAZOR'S EDGE

In an editorial headed "On a razor's edge", Greece's biggest daily newspaper, Ta Nea cautioned that the deal was still not done and said Athens, Brussels and Berlin were "holding their breath."

But as earlier worries faded that the bond swap could fail, forcing Greece to default and pitching the euro zone into fresh turmoil, financial markets picked up with shares in Asia recovering and oil prices rising.

Yields on Italian and Spanish government bonds fell as investors hoped a Greek deal would stop the crisis spreading to other weak euro zone countries.

A string of international banks and insurers, ranging from Germany's Munich Re to Bank of Cyprus have declared they would back the deal, reached after months of tortuous negotiations and repeated setbacks.

Only 177 billion euros of the debt is covered by Greek law and it was not immediately clear what proportion of the acceptances declared so far was under Greek law and how much under international law.

Thursday's deadline is only binding for the 177 billion euros of Greek law bonds, not the 10 percent or so of its debt covered by English or other international law.

It also remains to be seen whether enforcing the deal will trigger credit default swaps (CDS) insurance that some investors hold, adding an element of uncertainty over its wider impact.

Greece has staggered from one deadline to another since the crisis blew up in 2010 and even if the bailout is passed, several international partners have said more support will be needed before long and a default may only have been delayed.

Athens, which has annoyed its partners by repeatedly missing reform targets, urgently needs the package to keep paying its bills while it attempts to make deep structural reforms to its shattered economy, now in the fifth year of deep recession.

Unable to borrow normally on the bond markets, it must have the funds cleared by March 20, when redemption payments on 14.5 billion euros of bonds fall due. ($1 = 0.7625 euros)

(Additional reporting by Harry Papachristou, writing by James Mackenzie; editing by Anna Willard)

• A Permanent Economic Emergency