By Michele Kambas and Karolina Tagaris
NICOSIA (Reuters) - Cyprus's parliament was set to reject a divisive tax on bank deposits in a vote on Tuesday, pushing the island closer to a debt default and banking collapse.
A weekend announcement that Cyprus would break with previous practice and impose a levy on bank accounts as part of a 10 billion euro ($13 billion) EU bailout prompted turmoil on European financial markets on Monday.
Cypriot and euro zone officials have sought to soften the initially proposed levy of 6.75 percent on depositors of up to 100,000 euros and 9.9 percent above 100,000 to ease the burden on small savers.
But passage of the bill in the 56-member chamber, where no party has a majority, was unlikely. The House of Representatives was expected to meet at 1600 GMT(12:00 EST).
"It looks like it won't pass," Cypriot government spokesman Christos Stylianides told state radio.
Tuesday's vote, originally planned for Sunday, has been postponed twice already. Three parties have said outright they will not support the tax, while a fourth, in the co-governing coalition, said it cannot support it as it stands either.
Cypriot President Nicos Anastasiades asked the EU for more aid during a telephone conversation with German Chancellor Angela Merkel on Monday, with a second call likely on Tuesday. Stylianides said Anastasiades may also speak to Vladimir Putin, the Russian president.
The tax will batter not only Cypriots, but thousands of Europeans and Russians with business interests on the island. Putin on Monday described it as "unfair, unprofessional and dangerous."
Cypriot finance minister Michael Sarris was due to hold meetings in Moscow on Wednesday.
Stunned islanders emptied cash machines over the weekend and banks are to remain shut on Tuesday and Wednesday to avoid a bank run. Hundreds of protesters rallied outside parliament on Monday, honking horns and holding banners saying "We are not your guinea pigs!"
"If they vote for this tax they will face the fury of the people," said Markos Economou, a 47-year-old physics teacher and father of two. "The banks and the politicians should pay for this mess, not the people."
Seeking to overcome divisions within the government's own ranks, ministers were scrambling on Monday to ease the pain for small savers by tilting more of the tax towards those with deposits greater than 100,000 euros.
Euro zone finance ministers were in favor of imposing a 15.6 percent levy on deposits of above 100,000 euros to help recapitalize Cyprus' financial sector while sparing depositors up to that level, officials told Reuters.
It was not clear what version of the levy would eventually be voted on in Cyprus. The government maintains that Cyprus has no choice but to accept the bailout with the levy, or go bankrupt.
While Brussels has emphasized that the measure is a one-off for a country that accounts for just 0.2 percent of European output, fears have grown that savers in other, larger European countries will be spurred to withdraw funds.
"If you're a small depositor in Cyprus you'll tell yourself that it would have been better to keep your money under the carpet than in a bank," said a French bank executive who declined to be named.
"And if you're a Greek, a Spaniard or an Italian, well, you'll tell yourself that you might be next."
(Additional reporting by Lionel Laurent in Paris; editing by Patrick Graham)
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