UPDATE 1-Greece steps in to help settle JP Morgan bond deal

(Adds details, background)

ATHENS, June 8 (Reuters) - Greece offered on Friday to pay interest to state pension funds in a move to facilitate a deal between them and JP Morgan to buy back a structured bond at the heart of a scandal rocking the government.

"For the buyback of the 280 million euro bond there is disagreement between pension funds and the bank (JP Morgan) on the interest earned during the period the funds held the bond," the Labour Ministry said in a statement.

"Greece will cover the difference in case the two sides reach an agreement."

Last month, JP Morgan and London-based brokerage North Asset Management agreed to buy back the structured Greek government paper, which ministers have said was sold to pension funds at a high price, prompting an investigation by a prosecutor.

On Thursday, JP Morgan (JPM.N) said Greek pension funds turned down its offer to buy back the bond from the pension funds at the price it was sold, minus the interest earned.

The funds said they did not take the offer because it did not cover interest they could have earned otherwise -- by parking the money with a central bank deposit.

The labour ministry statement said the government would pay funds the rate of interest money earns in deposits with the Bank of Greece (BOGr.AT), the country's central bank.