* Greece extends debt buyback offer to Dec. 11
* Got offers of 26.5 bln eur by Dec. 7 close at 33.4 pct of face value
* Athens seeks more bonds tendered to reach 30 bln euro target
* Greek banks expected to step up with more offers
By George Georgiopoulos and Jan Strupczewski
ATHENS/BRUSSELS, Dec 10 Greece extended its offer to buy back debt until Tuesday, seeking more bids from bondholders after falling short of a target to retire bonds worth 30 billion euros at a cost of just 10 billion euros.
The buyback is designed to provide for about half of a 40-billion euro debt relief package for Athens agreed last month by the European Union and International Monetary Fund.
Its success is crucial to ensuring Greece's debt is put back on sustainable footing and - more immediately - to unlocking badly-needed aid for the country.
Despite the initial lack of investor interest, the scheme is expected to ultimately hit its targets since Greek banks - whose own fate depends on a successful buyback - are expected to stump up the shortfall.
A total of 26.5 billion euros was tendered at an average price of 33.4 percent of face value when the offer expired on Friday, a senior euro zone official told Reuters.
That would mean Greece would still have 1.15 billion euros left over from the 10 billion euros it was allotted to spend to retire outstanding debt. Assuming the same average price, it could buy an extra 3.5 billion euros worth of bonds.
Greece's debt agency extended the offer to 1200 GMT on Tuesday following Friday's deadline.
"The aim is to reach the 30 billion euro target on the face value of debt to be bought back," said a government official, who declined to be named, adding the aim was to use all of the 10 billion euros given by lenders for the buyback.
Euro zone finance ministers will meet on Thursday in Brussels to review the buyback operation and formally release the next disbursement of loans to Greece under its second international rescue programme.
"We are confident that there is still scope for additional tenders by domestic and international investors to ensure a successful debt buyback," European Commission spokesman Simon O'Connor told a regular briefing in Brussels.
A senior Greek banker who spoke on condition of anonymity said Athens aimed to use the additional day to get another 3 to 4 billion euros worth of bonds offered for exchange.
"This will be easily covered by Greek banks, if foreign bondholders do not offer more," the banker told Reuters.
Greek banks and insurers had tendered about 10 billion euros of bonds out of their total holdings of about 17 billion euros, the banker said. Nearly 63 billion euros of Greek debt held by private investors was eligible for the buyback.
Shortly before the previous Friday deadline expired, Greek banks got board approvals to offer as much as 100 percent of their bondholdings to make the buyback work.
Athens had offered better-than-expected terms for the buyback to entice investors, with price ranges at a premium over market prices.
But Greek lenders had been reluctant to sell back to the government all of their bondholdings, trying to limit the future profits and interest income on their bonds they will forego.
However, they are expected to step up now to ensure a successful buyback since they depend on the bailout funds that Athens stands to receive once it is completed. A big chunk of the 34.4 billion euros of aid due will be used to recapitalise them.
Athens badly needs the aid to revive its ailing economy, which is on track for a sixth year of recession due to austerity measures including spending cuts and tax hikes.
The EU and the IMF have been withholding rescue payments to Greece for six months because it had failed on pledges to shore up its finances, privatise and make its economy more competitive.
Greece and its international lenders had shied away from setting a binding target for the buyback, apart from saying that Athens would spend a maximum of 10 billion euros on it.
Under the scheme, Greece was expected to spend that amount to repurchase 30 billion euros of debt, shaving it by a net 20 billion euros. That would help slash Greece's debt to 124 percent of GDP by 2020, ensuring that the IMF stays on board in the country's rescue.
Greece set Dec. 18 as the settlement date for offers on the 20 series of outstanding bonds it is buying back.
Athens' debt agency chief urged investors to tender their holdings, warning a similar deal may not come again.
"Future measures may not involve an opportunity to exit investments ... at the levels offered for this buyback," PDMA Chief Stelios Papadopoulos said in a statement.