Cyprus said on Saturday it was looking at seizing a quarter of the value of big deposits at its largest bank as it races to raise the funds for a bailout from the European Union and avert financial collapse.

Banks in the debt-hit nation have been closed to prevent a run on deposits after initial plans for a tax on all accounts were revealed last weekend.

The ATMs have continued to function but long queues have formed at some banks.

Meanwhile, Finance Minister Michael Sarris said "significant progress" had been made in talks in Nicosia with officials from the European Union, European Central Bank and International Monetary Fund.
 
He confirmed discussions were centered on a possible levy of around 25 percent on holdings of over 100,000 euros at Bank of Cyprus, and expressed hope that a package could be ready by the end of the day for approval by parliament.

Cyprus faces a Monday deadline to clinch a bailout deal with the EU or the European Central Bank says it will cut off emergency cash to the island's over-sized and stricken banks, spelling certain collapse and a potential exit from Europe's single currency.

Amid signs of momentum, Cypriot and EU officials said Cypriot President Nicos Anastasiades was expected in Brussels on Sunday to meet EU leaders including Council President Herman Van Rompuy and Commission President Jose-Manuel Barroso, as well as IMF Managing Director Christine Lagarde and the head of the ECB, Mario Draghi.

Van Rompuy and Barroso canceled a planned EU-Japan summit in Tokyo to tend to the Cyprus saga and euro zone officials told Reuters that the bloc's 17 finance ministers would meet on Sunday afternoon.

"Significant progress has been made in the direction of getting a deal, at least at the troika level," Sarris told reporters.

He said a number of issues were still outstanding, but that a package could be ready "late this afternoon or early evening" for approval by parliament.

Arriving at the troika talks, Andreas Artemi, chairman of Bank of Cyprus, was asked if a 25 percent haircut was being considered on uninsured deposits. He replied: "I don't know that yet."

A senior lawmaker told Reuters earlier on Saturday that parliament was not expected to convene until after the meeting of euro zone finance ministers on Sunday afternoon, taking the crisis right down to the wire.

The same legislature on Tuesday angrily threw out a proposed levy on bank deposits, designed to raise the 5.8 billion euros the EU wants in return for a 10 billion euro ($13 billion) bailout.

The tax is unprecedented in Europe's handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy. It is by no means certain the tiny legislature will accept the measure this time around.

The turnaround came after Russia rebuffed Cypriot entreaties to help its banks, where Russian citizens and other foreigners have billions of euros at stake.

Significantly, the latest proposal would spare small depositors, who were outraged by the original plan to hit small holdings as well as large accounts, many of them held by rich foreigners including Russians.

Cypriot leaders fear the damage the levy would do to the country's offshore banking industry. The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.

But much of the banks' capital was wiped out by investments in Greece, the epicenter of the euro zone debt crisis.

Racing to placate its European partners, Cypriot lawmakers voted in late-night session on Friday to nationalize state pensions and split failing lenders into good and bad banks.

They also gave the government powers to impose capital controls on banks, anticipating a flood of money from the island when banks are due to reopen on Tuesday after more than a week of lockdown.

The plan to nationalize semi-state pension funds has, however, met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.

Taking a first step toward financial consolidation, Cyprus arranged on Friday for the takeover of big Greek units of its two biggest banks by a Greek competitor.

Lawmakers then gave the government the power to potentially split the good and bad assets of Bank of Cyprus and No. 2 lender Cyprus Popular Bank, also known as Laiki, and to protect deposits that enjoy a state guarantee of up to 100,000 euros.

"With the process of consolidation, the depositors over 100,000 euros will wait for several years to see how much of their deposits they will collect," said Averof Neophytou, deputy leader of the ruling Democratic Rally party.

"At the same time, this political decision to support this harsh law safeguards 100 percent of the deposits of 361,000 depositors in Laiki Bank," he added, referring to depositors with up to 100,000 euros.

The pace of the unfolding drama has stunned Cypriots, who have besieged bank cash machines since the levy was first mooted a week ago.

"Our so-called friends and partners sold us out," said Marios Panayides, 65, a protester at the parliament. "They have completely abandoned us on the edge of an abyss."

Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low.

"At the moment, supplies will last another two or three days," said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. "We'll have a problem if this is not resolved by next week."-Reuters