This story has been updated. See the note below for details.
REPORTING FROM ATHENS -- Greek officials on Thursday were set to resume difficult and complex talks on a debt-swap deal with private investors to avert a catastrophic government default that could unleash fresh turmoil in global financial markets.
The complicated bond-swap scheme is the linchpin of a bigger European plan to combat a growing debt crisis that began in Greece but is now threatening larger economies such as Spain and Italy.
"We are at a delicate phase," Greek government spokesman Pantelis Kapsis told reporters concerning the talks led by Prime Minister Lucas Papademos and Charles Dallara, the managing director of an international banking lobby group.
Meeting for the third time in three weeks, both men are under pressure to seal a deal that would slash $127 billion from Greece's debt burden by swapping old bonds for new ones with half the value.
Without that agreement, international creditors may pull the plug on a second, $140-billion bailout for cash-starved Greece. That, in turn, would make Athens unable to pay a big bond redemption due March 20, pushing Greece into an ugly default.
Hopes of a breakthrough surged last week, only to plummet over the weekend when haggling intensified over what interest rates the newly proposed coupons would carry.
Earlier this week, International Monetary Fund chief Christine Lagarde warned that Greece's public-sector investors, including the European Central Bank, might have to take a hit on their loans if private creditors failed to rally behind the deal.
[Updated 12:49 p.m. Jan. 26: Negotiations for the day between Greece and its private bondholders have wrapped up and are expected to continue tomorrow, said Frank Vogl, a spokesman for Dallara. Vogl said that Thursday's talks focused on legal and technical issues and that "some progress was realized."]
-- Anthee Carassava
Photo: Charles Dallara, representing private holders of Greek bonds, in Athens on Jan. 20 for talks with Greece's prime minister on restructuring the country's debt. Credit: Louisa Gouliamaki / AFP/Getty Images