Italian banks, through a depositor protection fund, have agreed to stump up between 500 million and 600 million euros as part of a 900 million euro (800.77 million pounds) rescue plan for Carige.

But the plan hinges on a cooperative lender outside the FITD depositor fund - Cassa Centrale Banca (CCB) - also taking part in the recapitalisation to the tune of about 70 million euros and agreeing to buy back the fund's shares in Carige at a later stage to gain a majority stake.

CCB had set conditions the FITD considered unacceptable, including buying FITD's stake in the lender at a 90 percent discount in four years' time, a source said earlier.

But later on Wednesday, two sources close to the matter said the two sides had hammered out an agreement to subscribe a 700-million-euro rights issue.

A board meeting of CCB on details of the broader rescue plan for Carige was still ongoing, one of the sources added.

PRESSURE FROM ROME

Genoa-based Carige, weakened by decades of mismanagement, is in danger of collapse under the weight of bad loans accumulated during Italy's recession after the global financial crisis a decade ago.

The government is keen to avoid liquidation of the bank or having to fund a bailout with taxpayer money, as Italy did with Monte dei Paschi di Siena and two Veneto lenders in 2017.

Under pressure from Rome, FITD kicked off the rescue process for Carige with the approval on Tuesday of the conversion of about 313 million euros of a bond into shares, involving participation from both private and state-owned entities.

A number of questions remain, however.

It is not clear who will run the bank, which was placed under special administration by the European Central Bank (ECB) in January after plans for a previous capital increase fell through.

And the Malacalza family, Carige's biggest investor with a 27.5 percent stake, has reservations about the latest rescue plan, according to another source familiar with the matter.

After at least two bailout plans fell through, the ECB has given Carige until July 25 to come up with a solution. That deadline could be extended by a few days if a concrete rescue plan was being put in place, a third source said.

The current plan under consideration includes two state-owned banks buying a 200 million euro convertible bond to prop up Carige, with state-backed bad bank SGA purchasing its bad loans.

(Additional reporting by Giulio Piovaccari; Editing by Silvia Aloisi, David Goodman and Mark Potter)

By Stefano Bernabei and Andrea Mandala