* Island facing worst crisis since 1974 war
* Crisis talks to avert default go down to the wire
* Prospect of financial meltdown, euro zone exit
By Karolina Tagaris and Costas Pitas
NICOSIA, March 24 Dora Giorgali says she has to go back almost 40 years, when Cyprus was at war, to recall such a feeling of anxiety.
"I haven't felt so uncertain about the future since I was 13 and Cyprus was invaded," the 53-year-old unemployed nursery teacher said on a warm and bustling square in the capital, Nicosia.
"I have two children studying abroad and I tell them not to return to Cyprus," she said. "Imagine a mother saying that."
Hope mingled with a sense of dread on Sunday as leaders of this tiny Mediterranean island sought a last-minute reprieve from financial meltdown in talks in Brussels.
For Giorgali, these are the worst days since war with Turkey in 1974 split the island in two and displaced a quarter of the population.
In Nicosia, still a divided capital, Cypriots spilled into streets bathed in warm sunshine. The talk was of bailouts, Europe and betrayal.
"We had the impression that being part of Europe would be a good thing, that it would solve our problems," said Chris Kikas, whose business selling hand painted religious icons has seen better days. "Well, it's not like that at all," he said. "Where is the solidarity?"
The island of 1.1 million people, for years a haven for big offshore finance, rich Russians and sun-seeking British expats, has been stunned by the pace of the unfolding drama that has left them staring at the prospect of financial meltdown.
Only a month ago they elected conservative leader Nicos Anastasiades as president on a mandate to secure a bailout that would stave off default and shore up banks crippled by their exposure to Greece, the epicentre of Europe's stubborn debt crisis.
On Sunday, Anastasiades was locked in talks with Cyprus's partners in the 17-nation euro zone, still short of the billions of euros they want before signing off on a 10 billion euro rescue package to keep the island economically afloat.
Shops, traditionally closed on Sundays, were open in the hope of attracting enough customers to kickstart the slow trade of the last few weeks.
But with bank doors closed for a week already, one mobile phone store had pinned a sign in its window that read, "Cash only - until the financial situation is resolved."
"CYPRUS NOT FOR SALE!"
Retailers say they are running low on stock, unable to make bank transfers or meet cash-on-delivery demands from suppliers.
"All we can do is wait and hope for the best," said Yorgos Papapavlou, who has been unable to restock his popular textile shop because he cannot pay suppliers by bank transfer.
"People are out today to let off steam," he said. Unsold textile rolls, a metre for one euro, were stacked high outside on the cobbled street. Papapavlou said business was down 90 percent.
Cyprus has escaped the bouts of angry street violence that frequently erupt in Greece. But peaceful protests have become a daily occurrence. On Sunday, around 200 bank workers, some of whom face losing their jobs, gathered outside the presidential palace chanting "Troika out of Cyprus!" and "Cyprus not for sale!"
'Troika' has become a dirty word in the euro zone's debt-laden southern states, referring as it does to the trio of lenders - the EU, European Central Bank and International Monetary Fund - demanding strict austerity in return for economic salvation.
Many Greeks, Italians or Cypriots say the medicine is worse than the sickness.
Cypriots were outraged last weekend to learn that they would have to take a hit on their personal bank deposits to raise 5.8 billion euros in return for the country's 10 billion euro bailout. They besieged bank machines.
"The banks will reopen on Tuesday, but will there be any money left in them for people to withdraw?" asked Vlasa Cyprian, a 35-year-old petrol pump attendant. "I don't think so," he said, "and if there is, there'll be little, very little."
The proposed levy, thrown out by lawmakers panicked by the visceral reaction of their voters, now targets big savers over 100,000 euros, many of them Russians and other foreigners who squirreled their money away in the country's over-sized banks on the kind of favourable terms unseen elsewhere in the EU.
Cyprus now faces a Monday deadline to seal the bailout, or the European Central Bank says it will sever emergency funding to the island's stricken banks. Talks in Brussels were set to drag on late into the night.
Whatever the outcome, Cypriots will see little reason for cheer. Giorgali, the unemployed nursery teacher, joked that her family was so glued to the television news that there was a deep dent in the sofa.
"I think a solution will be found," she said, "but it won't be in the best interests of our country."