A German government source says European governments have agreed in principle to support Greece and are considering various options, including bilateral aid.
'The decision on help for Greece has been taken in principle within the euro zone,' the source quoted by Reuters said.
The comments were the first clear sign that Germany may be ready to step in to stave off a crisis of confidence in the euro zone that has unsettled markets around the world.
Earlier, EU Economic and Monetary Affairs Commissioner Joaquin Almunia had fuelled speculation of a rescue by urging European leaders to help Athens, which is under acute pressure to rein in its swollen debt and deficit.
'I would like the leaders of Europe to say to the Greek authorities that in exchange for the efforts you are making, you are going to get support from us,' Almunia told the European Parliament.
The euro, which fell to near nine-month lows against the dollar on Friday amid worries about Greek, Portuguese and Spanish finances, moved close to $1.38 following the comments from the German source. The spreads of Greek bond yields over benchmark German issues also narrowed sharply on the day.
Debt-ridden euro zone countries like Greece, Portugal and Spain are under intense pressure to rein in stretched budgets, aggravated by a steep economic downturn and billions of euro in stimulus spending. Their financial woes have hit investor confidence in the 11-year old single currency area and even sparked speculation that a country could be forced out of the currency area.
The Greek troubles are expected to dominate a summit of EU leaders on Thursday that was originally intended to focus on a long-term economic growth strategy.
Speculation about a Greek rescue began early in the day by news that European Central Bank President Jean-Claude Trichet was cutting short a trip to Australia to attend the special EU meeting in Brussels.
Although an ECB spokesman played down the significance of the change in travel plans, it fuelled speculation that EU action to help Greece resolve its debt woes may be forthcoming.
The Greek government has vowed to cut the budget deficit, which spiralled to 12.7% of gross domestic product (GDP) last year, below the EU's 3% ceiling by 2012. Today, Finance Minister George Papaconstantinou outlined plans to freeze public sector wages and overhaul the country's tax regime in a bid to consolidate the budget.
Greece is also to raise the average rate of retirement by two years to 63 by 2015 as part of a spate of measures to clean up its public sector.
