Lenders press Greece to shrink state and avoid default

Adding to concerns, Standard & Poor's cut its ratings on Italy in a major surprise that threatens to stoke fears of contagion in the debt-stressed euro zone.

Greece is near a deal to continue receiving bailout funds, a Greek finance ministry official said after a conference call with lenders, though "some work still needs to be done."

U.S. stocks recovered some of their losses on the news.

Greek Finance Minister Evangelos Venizelos held what Greece termed "productive and substantive" talks by telephone with senior officials of the European Union and International Monetary Fund after promising as much austerity as necessary to win a vital next installment of aid.

The talks will resume on Tuesday evening after experts meet through the day. Earlier, the IMF's representative in Greece spelled out steps Athens must take to secure the 8 billion-euro loan it needs to pay salaries and pensions next month.

"The ball is in the Greek court. Implementation is of the essence," Bob Traa told an economic conference.