* Zurich could convert surety bond to loan - source * Talks likely to resume on Jan. 27 * Project working at about a quarter of capacity * Sacyr deadline pushed back to Jan. 31 By Lomi Kriel and Sonya Dowsett PANAMA CITY/MADRID, Jan 22 (Reuters) - The Panama Canal Authority (PCA), a Spanish-led consortium and insurer Zurich have come up with a possible financing deal to resolve the dispute threatening a project to expand one of the world's most important shipping routes. The consortium of building companies, led by Spain's Sacyr , had vowed to stop work on the waterway by Jan. 20 unless the PCA agreed to foot the bill for $1.6 billion in unforeseen additional costs. "There is a proposal on the table which the parties have put forward," Panama Canal Administrator Jorge Quijano told reporters, referring to talks held on Tuesday. "It could offer a pretty long-term solution so work can continue." Quijano said that Zurich is seeking a role in attempts to resolve the dispute and is weighing up a possible deal. A source with knowledge of the matter said one option is for the insurer to convert $600 million of surety bonds into a loan that would free up money to help to complete the project. Zurich declined to confirm this had been proposed. Sacyr, relying on the high-profile project for about a quarter of its international revenue, declined to comment. Halting construction on the project would be a setback for companies eager to move larger ships through the Panama Canal, including liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf Coast to Asian markets. The consortium's Jan. 20 deadline has been extended to the end of the month, Quijano said, though a PCA official said that work at the construction site is running at about a quarter of capacity. Apart from the dispute over the huge cost overruns, the parties are trying to find ways to come up with additional cash to finish the project, which is due to be completed in mid-2015. Further delays could cost Panama millions of dollars in projected revenue from toll charges. CHECKING THE NUMBERS Quijano said that no deal had been reached at Tuesday's meeting but that "Zurich is right now checking the numbers" proposed by the consortium. No further talks were planned for Wednesday, but Quijano said that the two sides would stay in touch, with another meeting possible on Jan. 27 or sooner. The PCA said this week that it had turned down an offer by the European Commission to mediate in the multibillion-dollar dispute. The entire project was due to cost about $5.25 billion, but the overruns could bump that to nearly $7 billion. The canal authority said last week that it might take over a key part of the waterway's expansion if the consortium in charge of the project makes good on its threat to suspend work. The consortium, which also includes Italy's Salini Impregilo , Belgium's Jan De Nul and Panama's Constructora Urbana, won the contract in 2009 to build a third set of locks, the main part of the project to double capacity of the near 50-mile (80 km) transoceanic cargo route.