Major economic powers agreed on Saturday to write off billions of dollars of debt for Iraq, the French Finance Ministry said, in a deal that marked a significant step in U.S. efforts to help put the Iraqi economy back on its feet.

Under the agreement, the Paris Club (search) of 19 creditor nations will write off 80 percent of the $42 billion that Iraq owes them, ministry spokesman Rene Forgues said.

"It's 80 percent, it's official," Forgues told The Associated Press. He said the deal would take effect in three phases but did not give additional details.

The Paris Club includes, the United States, Japan, Russia and European nations. Iraq owes another $80 billion to various Arab governments.

The United States had been pressing for up to 95 percent of the Paris Club debt to be lifted. Iraq has said that its foreign debt was hindering postwar reconstruction, already struggling amid the country's persistent insurgency.

The deal represented a considerable concession from France, just as French President Jacques Chirac's government is pushing to rebuild ties with Bush's administration that were damaged by disagreements over the U.S.-led Iraq war. France opposed the invasion that toppled Saddam Hussein.

A Russian official, speaking on condition of anonymity, said the first tranche of debt reduction would take effect immediately, with a second tranche to follow in 2005 upon completion of a preliminary agreement between Baghdad and the International Monetary Fund.

The third and final tranche would take place upon completion of a three-year economic program to be agreed on with the IMF, the official said.

The deal was reached after Russia, the one country that still needed to sign off on the deal, gave its approval after talks that began Saturday, went through the night and ended Sunday, officials said.

Russian President Vladimir Putin has previously said his country would be willing in principle to write off more than half of Iraq's $8 billion debt to Moscow through the Paris Club.

Putin told President Bush in a meeting Saturday "that he was prepared to work with the United States, the other members of the Paris Club, as we review this issue in the next hours and days," said a senior U.S. official. They met at a 21-nation economic summit in Chile of Pacific Rim leaders.

Bush said a Paris Club agreement was close, and he "wanted to work with the Russians so that we could get the substantial debt reduction that we're looking for -- 80 percent write-off," said the U.S. official.

A large reduction in Iraq's debts to the group would mark a significant step in U.S. efforts to put the Iraqi economy back on its feet and be a boost for Bush as he embarks on his second term.

France had long argued that slashing Iraq's Paris Club debt by more than half would be unfair to other poorer nations that also are saddled with debts but do not have the potential wealth of oil-rich Iraq.

"How would you explain to these people that ... we are going to do more for Iraq than we have done in 10 years for the 37 poorest and most indebted countries in the world?" Chirac said in June at a summit of the Group of Eight powers that Bush hosted.

Germany, another opponent of the war, also had questioned whether a country with rich oil reserves should benefit from huge debt reduction.

Germany's Finance Minister Hans Eichel has said the proposed deal would see 30 percent of Iraq's Paris Club debt written off immediately, another 30 percent in a second stage "tied to a program of the International Monetary Fund" and a further 20 percent "linked to the success of this program."