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Bank shares took a further sharp tumble on Tuesday, leading a broader stock market retreat, after the 17 euro zone ministers, meeting in Luxembourg, called for a review of a July 21 debt swap agreement with private bondholders.

The delay in disbursing an 8 billion euro loan installment, which Greece had said was needed to pay October salaries and pensions, and the revisiting of the private sector deal raised the chance of a Greek default as soon as the currency area has new financial firefighting tools in place, analysts said.

"The market is increasingly worried about the potential of the Greek crisis and the calamity that could be created if there was a messy default," said Jane Foley, senior currency strategist at Rabobank.

The euro hit a nine-month low against the dollar and a 10-year low against the yen.

Investor confidence was also hit by deepening trouble at Franco-Belgian bank Dexia, a municipal lender with big holdings of Greek and other peripheral euro zone debt, whose shares plunged by over 20 percent on Tuesday after losing 10 percent on Monday.

The French and Belgian finance ministers said in a joint statement that Paris and Brussels and their central banks would take all necessary measures to safeguard Dexia account holders and creditors.

Jean-Claude Juncker, chairman of the 17-nation Eurogroup, said ministers were reassessing the extent of private sector involvement in a planned 109 billion euro second rescue package for Greece which may now prove insufficient after Athens admitted it would miss key deficit targets.

Under the July deal, private creditors agreed to take a 21 percent write-down on their Greek holdings via a plan to lighten and stretch the debt burden, with euro zone governments funding credit enhancements to attract voluntary participation.

Now that Greece's economic growth and deficit situation has worsened, that deal needed to be reviewed, Juncker said.

"As far as the PSI (private sector involvement) is concerned, we have to take into account the fact that we have experienced changes since the decisions we took on the July 21, so we are considering technical revisions, so yes," Juncker told reporters. He would not elaborate.

France, whose banks stand to lose most from a Greek default, urged all sides to stick to the original deal.

"We have the July 21 agreement. We have to implement it, we have to keep working on it. Today Greece needs to make an effort, needs to keep moving," French government spokeswoman Valerie Pecresse said on i>Tele.

Juncker also disappointed analysts by saying the European Central Bank was not the main avenue being explored to increase the firepower of the euro zone's rescue fund.

His comment, reflecting strong German opposition to using the ECB to leverage up the European Financial Stability Facility, raised doubts that the bailout fund can be sufficiently scaled up to calm febrile markets.

The United States has urged the euro zone to leverage its 440 billion euro rescue fund to buy government bonds from the market, recapitalize banks and extend precautionary credit to sovereigns but political resistance to pouring more public money into bailouts is growing across northern Europe.

In Athens, striking public sector workers blockaded the entrance to several ministries on the second anniversary of the ruling Socialist party's election victory, disrupting talks with EU and IMF inspectors on the next aid tranche.

"TIME TO DECIDE"

Despite more than six hours of talks, the euro zone meeting produced few concrete steps to tackle the deepening sovereign debt crisis, raising expectations that Greece will end up having to default on its 357 billion euros of debts.

All roads now point to mid-November.

The only minor advance was a deal resolving a dispute over Finnish demands for collateral from Greece in return for new loan guarantees. The terms were complex and seemed designed to deter other countries from seeking such special conditions.

A tentatively planned finance ministers' meeting on Oct 13, expected to have signed off on the next payment to Greece, was canceled, giving EU and IMF inspectors several more weeks to report back on Athens' austerity measures and lagging economic reforms and privatizations.

"Greece told us that the funds will have to be made available during the second week of November," Belgian Finance Minister Didier Reynders said.

"We reviewed the Greek plan and we will now wait for the final report from the troika since we have time to decide."

Euro zone parliaments are expected to complete approval of new powers for the EFSF rescue fund by mid-October, giving it scope to intervene on bond markets and help recapitalize banks.

Greece's admission on Sunday that it will miss its deficit target this year despite ever deeper cost-cutting measures provoked a sharp sell-off in stock markets and raised new doubts over the proposed second bailout.

Economists and market analysts have long said the July deal was insufficient to make Greece solvent and forecast that Athens would have to default within months.

Greece's draft budget sent to parliament on Monday showed this year's deficit would be 8.5 percent of gross domestic product, well above the 7.6 percent agreed in Greece's EU/IMF bailout program, the benchmark for future EU aid.

Compounding the debt problem, the economy is set to shrink by a further 2.5 percent next year after a record 5.5 percent contraction this year.

The deeper-than-forecast recession means public debt will be equivalent to 161.8 percent of GDP this year, rising to 172.7 percent next year, by far the highest ratio in Europe.

The likelihood that Greece's funding needs next year will be greater than forecast when the second rescue package was agreed in principle in July has reopened a fraught battle over who should pay -- taxpayers or financiers.

EU and German officials have suggested the creditors' "haircut" may have to be increased to as much as 40 or 50 percent.

(Additional reporting by Jan Strupczewski and Philip Blenkinsop in Luxembourg, Neal Armstrong in London, Vicky Buffery in Paris, Angeliki Koutantou, Ingrid Melander and Harry Papachristou in Athens, Ritsuko Ando in Helsinki; Writing by Paul Taylor)