If the Treasury and the Bank of Italy give the go-ahead, Italy's third biggest lender would become the country's first banks to resort to state help as the euro zone debt crisis deepens.

"There are very close contacts with the Bank of Italy and the Treasury, although there is no final go-ahead," one of the sources said.

A second source said: "They are negotiating actively, but the Bank of Italy has to give the final approval."

Monte dei Paschi has been struggling to fill a 3.3 billion euros capital deficit by end-June to meet tougher requirements set by European regulators.

The bank, which will present its new business plan and capital-strengthening measures on Wednesday, has taken a series of steps to boost its capital but still needs to find 1.0-1.4 billion euros, according to sources close to the situation and analyst estimates.

Monte dei Paschi had already issued 1.9 billion euros of high-yielding Treasury-backed bonds in 2009.

(Reporting By Stefano Bernabei and Silvia Aloisi)

• A Permanent Economic Emergency