UPDATE 2-Austria has creditor support to turn the page on Heta

* 75 pct of senior, 50 pct of junior bondholders agreed so far

* State to pre-finance major part of the payout

* Austria among first to force creditors to take hit (Adds details on financing, governor, background)

VIENNA, Oct 4 (Reuters) - Enough creditors in failed lender Hypo Alpe Adria have supported a bond buyback offer for the deal to proceed, Austria’s finance minister said on Tuesday, drawing a line under the country’s worst postwar financial scandal.

Two years after “bad bank” Heta Asset Resolution was created to wind down Hypo Alpe’s toxic assets, Austria hopes the hard-won agreement will restore its credibility with foreign investors and close a painful chapter of financial overreach.

It comes at a price -- the finance ministry is prepared to provide around 8 billion euros ($8.9 billion) for the initial payout, money it expects to recoup from asset sales.

The deal is seen as a test case for European efforts to involve investors in the clean-up of failed banks, rather than leaving the burden entirely with taxpayers.

The southern province of Carinthia, which guaranteed bonds with a nominal value of 11 billion euros ($12 billion) issued by Hypo but was unable to pay in full, offered to buy them back at a discount.

But a long-running standoff over terms ensued with bondholders -- around 70 percent of them German banks and insurers including Deutsche Bank, Commerzbank , Pimco and Dexia Kommunalbank.

The dispute had pushed Carinthia, whose largest city is Klagenfurt, to the edge of insolvency.

Under the new offer, the repayment rate for senior bond holders is seen at 90 percent of nominal value -- around 8 percentage points more than the previous offer. Creditors can pocket the money after 50 days at the earliest.

“As of the end of last week, I can report that the status is now that 75 percent of creditors for senior bonds agree and 50 percent for junior bonds,” Finance Minister Hans Joerg Schelling said on the sidelines of a cabinet meeting.

Two thirds of creditors, including 25 percent of junior bondholders, are needed for the offer, expiring on Friday, to be binding. Creditors had rejected a first proposal as too low in March.

Junior bondholders will get back up to 45 percent of nominal value.

Hypo had to be nationalised in 2009 after a Balkan expansion spree went awry and German regional lender BayernLB, which in 2007 bought a majority stake, gave up control.

Up until 2014 the failed lender cost Austrian tax payers 5.5 billion euros. Financial regulator FMA took charge last year, imposing a debt moratorium and seeking a big haircut.

The money for the settlement should be recovered from Heta asset sales, which include non performing loans, property and machinery. The country’s debt level will not be affected, the finance ministry said, as appropriate provisions had been made years ago.

Carinthia will provide 1.2 billion euros toward the buyback, helped by a federal loan it has to repay over 30 years.

The province’s governor said the news was positive but he kept up his guard, saying creditors could also withdraw their approval until the offer expires on Friday.

“We won’t count our chickens before they’re hatched,” said Peter Kaiser. ($1 = 0.8957 euros)

Reporting by Kirsti Knolle; Editing by Keith Weir