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In a move meant to stifle dissent in his Socialist Party, Papandreou on Friday dismissed Finance Minister George Papaconstantinou, architect of a new five-year austerity program that has sparked weeks of protests.

The reshuffle coincided with a pledge by France and Germany to continue funding Athens, a move that may have bought Greece and its fellow euro zone members time to prevent a messy default, even if doubts over its longer-term solvency persist.

The European Union and International Monetary Fund have made the reforms a condition for a new bailout package worth an estimated 120 billion euros ($170 billion) that Greece, shut out of markets, will need to fund itself through 2014.

Around 5,000 protesters from the Communist group PAME marched into Athens' central Syntagma square -- where demonstrations turned violent earlier this week -- chanting "the measures are killing us!"

French activists also performed with a three-meter puppet depicting a bloodied figure of Lady Justice to rhythmic drumming, in a gesture of solidarity with Greek protesters who have camped in the square for three weeks.

"What has changed with the reshuffle? Nothing," said Costas, a 22-year-old student who has been camping on the square since the beginning of the month. "We are not planning to leave unless they take back the measures."

An opinion poll taken before the reshuffle showed 47.5 percent of respondents wanted parliament to reject the reform package and for Greece to hold early elections.

Just over a third -- 34.8 percent -- wanted it to be approved so Athens could secure the second bailout.

Constantinos Routzounis, head of pollsters Kapa Research, said Greeks were not against austerity in itself but thought the reforms were unfairly aimed at the poor while wealthy tax evaders and corrupt politicians got off lightly.

"People don't want Greece to exit the euro zone. They do want fiscal consolidation measures -- but more just ones," he told Reuters.

Greece's biggest union GSEE, representing around 2 million workers in the private sector, called for a 48-hour strike when parliament votes on what has been dubbed the mid-term plan. The government hopes that will happen by end-June.

RESHUFFLE MIGHT WEAKEN REFORMS

Papandreou appeared to curb a revolt in his party by including some of the austerity package's harshest critics in the new administration, but that might also lead to a weakening of the reforms.

He named political heavyweight Evangelos Venizelos, his biggest party rival, as finance minister.

Shortly after his nomination, Venizelos said he would travel to Luxembourg on Sunday to meet euro zone finance ministers and ask them to allow some "improvements ... for social justice" in the reforms, fuelling concerns that the new government has less resolve to hammer through the austerity program.

The finance ministers are expected to agree to release a 12 billion euro tranche of an existing year-old bailout that Greece needs to pay back debt maturing in July and August and avoid default.

"They've bought themselves time until September," said Howard Wheeldon, strategist at BCG Capital Partners in London.

"Germany and France are the main countries involved here, and neither of them are going to let the euro fail, and they're not going to let Greece fail."

Luxembourg's Jean-Claude Juncker, chairman of the euro zone finance ministers' Eurogroup, criticized German pressure to involve bondholders, telling a German newspaper this has pushed up the cost of the bailout.

"We are playing with fire," he said, adding that in the worst case, ratings agencies could declare a default leading to dire consequences for the currency union.

Papandreou's new cabinet is expected to survive a parliamentary confidence vote on Tuesday night, and then approve a package which envisages 28 billion euros in tax hikes and spending cuts by 2015.

But Greek media were less certain about implementation, an issue that dogged Venizelos's predecessor when he struggled to meet deficit targets agreed with Greece's bailout lenders.

"Greece needs a strong government. But does it need a strong government to finally implement what has been agreed with the EU or to break these deals?," columnist Yiorgos Karipidis wrote in main Greek financial daily Imerisia.

FEARS OF DEFAULT

On Saturday, German Finance Minister Wolfgang Schaeuble said all parties negotiating a new bailout had agreed that private creditors should be involved on a voluntary basis but details on how to do this still needed to be worked out.

A day earlier, German Chancellor Angela Merkel backed away from a demand that private bond holders swap their holdings for new Greek debt with maturities of seven years.

She said she now believed that an option based on investors voluntarily maintaining their exposure was a "good foundation" for a deal.

In St. Petersburg, Spanish Prime Minister Jose Luis Rodriguez Zapatero also said the private sector would voluntarily take part. "Greece will be able to come out of it with the help of the IMF and Europe," he said.

"That will certainly cost money, efforts will have to be applied, but simply because we are going to do it the private sector will voluntarily participate in this process. Therefore there are no other alternatives."

On Friday Merkel also brushed aside reports that Germany had been pushing to delay agreement on a new bailout until September, instead calling for the quickest possible solution.

Olli Rehn, the European Commission's top economic official, said he was confident the next tranche of EU/IMF aid would be released next month and expected euro zone finance ministers to take decisions on a successor program for Greece on July 11.

The Franco-German agreement on Friday reduced market risk premiums on Greek debt after a week-long financial retreat.

However, most economists are overwhelmingly skeptical that Greece can ever repay a debt pile that economists expect to rise to 170 percent of the country's annual economic output by 2013.

(Additional reporting by Barry Moody, Hugh Lawson in Athens, Brian Rohan in Berlin, and Tim Heritage in St. Petersburg; writing by Michael Winfrey; editing by Barry Moody and Ruth Pitchford)

After setting its closing high for the year on April 29, the S&P 500 has lost 7 percent. Wall Street typically defines a drop of 10 percent or more from a recent peak as a correction.

The benchmark S&P 500 hit its lowest point right on its 200-day moving average in volatile trading on Thursday. The index then rallied 1 percent from that session low to close on Friday at 1,271.50. It also scored its first weekly gain in the last seven weeks.

At Friday's close, the S&P 500's 200-day moving average was around 1,259. If the level holds, it could be a springboard for stocks to rally.

"We seemed to have bounced off that level of concern that people were watching," said David Joy, chief market strategist at Ameriprise Financial, where he helps oversee $571 billion in assets. "At least for now, that is a little bit of evidence that these problems are solvable and markets could move higher."

The Nasdaq, which often leads market moves, has not fared so well, and that is a worry to investors. It has closed below its 200-day moving average and kept falling on Friday when other indexes stabilized. It ended the week down 1 percent. From its 2011 closing high on April 29, the Nasdaq has tumbled nearly 9 percent -- getting close to a correction.

Bond markets remain anxious about a Greek default.

Most economists are overwhelmingly skeptical that Greece can ever repay its mountain of debt, which has reached 340 billion euros -- or 150 percent of the country's annual economic output.

Reuters' calculations using 5-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting, based on a 40 percent recovery rate.

SOME SAY IT'S TIME TO BUY

But for now, it seems stock investors are sanguine. They believe the European Union will rescue Greece without major disruption to markets and are using the drop in equity prices as a buying opportunity.

Bob Doll, chief equity strategist at BlackRock, says he has been using the pullback to reduce his underweight in cyclical stocks such as a Alcoa Inc , Applied Materials, and International Paper.

He has also been cutting his overweight in defensive areas such as healthcare, trimming positions in stocks like United Health and Aetna.

Doll believes the S&P 500 will rally to 1,350 by the end of the year.

"We're going to find Band-Aids and we're going to muddle through these credit problems," Doll said. "The consequences of not following that route could be pretty dire, and I think the interested vested parties are going to step up."

BlackRock is one of the world's largest money managers with $1.56 trillion in equity assets under management. Doll is also lead portfolio manager of BlackRock's Large Cap Series Funds and advises on $317 billion that is actively managed.

TUNING IN TO THE FED

A slew of data showing the United States is on the verge of a slowdown has already done its damage to the market. After the heavy selling of the past several weeks, it seems investors are taking a wait-and-see approach -- for now.

Joy is waiting until after the summer before making big moves.

"There is so much uncertainty that it is probably not wise to make big long bets, but I think that opportunity may well arise toward Labor Day," he said.

In the meantime, any sign that fears may have been overblown could spur a rally. The final reading on U.S. gross domestic product for the first quarter is forecast to come in at an annualized growth rate of 1.9 percent -- slightly higher than the first two estimates. But investors will be on the lookout for a surprise.

"People are not expecting a lot from GDP so should it come a little better than expected, you could see a pretty decent rally," said King Lip, chief investment officer of Baker Avenue Asset Management in San Francisco.

Some analysts attribute much of the market's turmoil to the end of the Federal Reserve's asset-purchase program, known as quantitative easing, or QE2. That will come to a close at the end of the month.

Investors will be looking to Chairman Ben Bernanke to reassure markets after the Fed's two-day meeting ends on Wednesday.

"What investors are really looking for is not a QE3 but a QE2.5, where (the Fed) continues to reinvest the coupons they get from the bonds they purchased," Lip said. "If that's the case, investors will look well on that."

The CBOE Volatility Index or VIX, a gauge of investor anxiety, spiked during the week, but it is still at relatively depressed levels. That could be a sign investors are still too complacent about the risks ahead.

"If the economy is slowing as much as people are thinking, should there be more risk to second-quarter earnings? That's a real question we have to ask," Doll said. "There is risk of complacency -- no question."

(Reporting by Edward Krudy; Additional reporting by Angela Moon and Rodrigo Campos; Editing by Jan Paschal)

In an interview with the Saturday edition of Boersen Zeitung business daily, Wolfgang Schaeuble reiterated Berlin's position that financing a new bailout for Athens should not be left entirely to governments.

"Fundamentally all parties agree that the private sector must do its part in a new Greek aid package -- but we are still discussing the 'how'," he said.

"We need a voluntary participation from private creditors, which firstly lends substantial support for Greece, second is quantifiable and third is reliable," he added.

The leaders of Germany and France, long at odds over how to involve private holders of Greek bonds in a new rescue package for Athens, said on Friday they agreed on a mild solution favored by Paris and the European Central Bank.

German Chancellor Angela Merkel said this approach, modeled on a 2009 agreement by banks to maintain their exposures in central Europe at the height of the financial crisis, was a "good foundation" for a Greek deal.

Bond markets remain fearful that Greece may default and most economists are overwhelmingly skeptical that it can ever repay its debt mountain, which has reached 340 billion euros ($480 billion) or 150 percent of the country's annual economic output.

Boersen Zeitung did not say when its interview was conducted and was not immediately available for comment by telephone.

(Writing by Brian Rohan; Editing by Ruth Pitchford)