Lenders press Greece to shrink state and avoid default

International lenders told Greece on Monday it must shrink its public sector to avoid running out of money within weeks, as investors spooked by political setbacks in Europe dumped risky euro zone assets.Adding to concerns, Standard & Poors cut its ratings on Italy in a major surprise that threatened 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 IMFs 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.Additional savings measures were required to cut the public deficit to a sustainable level and reduce the public sectors claim on resources -- code for axing jobs and cutting pay and pensions -- while improving tax collection rather than adding further taxes, Traa said.