* European shares pare losses suffered on Cyprus crisis
* Heading for worst week since November
* German govt bond yields edge off 2013 lows
* Euro up to $1.295, gold eyeing best week in 4 months
By Marc Jones
LONDON, March 22 (Reuters) - World shares headed for their
worst week since November while gold rose strongly on Friday, as
Cyprus scrambled to avoid a meltdown of its banks and exit from
the euro that could upset the whole region.
The European Union has given Cyprus until Monday to raise
5.8 billion euros to secure a 10-billion euro international
bailout. Parliament has already rejected one deal and it is set
to be a hectic weekend of negotiations.
Wall Street was expected to open higher, partly on hopes the
euro zone will patch together a last-minute rescue as so often
before. Bit after minor sell-offs in recent sessions, the S&P
500 and Dow Jones index were both expected to end the week
Despite its small size - just 1.1 million people - Cyprus
remained the focus of market attention on concerns it could
rekindle the euro zone crisis after months of relative calm.
Cypriot Finance Minister Michael Sarris had been forced to
fly home from Moscow empty-handed earlier, after failing to win
support in two days of crisis talks with Russia on a possible
new financing package. Many Russians hold savings in Cypriot
Cyprus's partners in the 17-nation euro zone have little
patience as lawmakers prepared to debate plans to bundle state
assets in what has been likened to "a national fire sale".
Europe's stock markets have borne the brunt of this week's
worries and the pan-European FTSEurofirst 300 was flat
ahead of the Wall Street restart and on course for its worst
week since mid-November.
It had been deep in the red before Cyprus resurrected a deal
to spin off the Greek operations of its banks, helping the main
European indexes claw back losses.
But it was not enough to fully turn market sentiment. Asian
shares had ended the week at the lowest this year and the minor
drops on Germany's DAX and France's CAC-40, left
the MSCI world share index down 0.2 percent.
Data from Germany had also weighed on the market mood, after
a survey from the Ifo institute showed business morale in the
euro zone's biggest economy fell for the first time in five
Germany's economic resilience remains the bloc's best hope
of pulling out of recession but David Brown of New View
Economics said the Ifo survey suggested "the bells are starting
to toll in Germany that the euro zone crisis is about to hit
recovery prospects again".
Cyprus's worries underpinned demand for safe-haven assets;
gold was slightly down on the day at $1,606 an ounce but
on track for its biggest weekly rise in four months.
German government bonds were also strong. The yield on
10-year Bunds fell to its lowest level of the year
in early trading and traders expected further falls if the
crisis on the Mediterranean island of 1.1 million remains
Although a deal with the EU was possible over the weekend,
Alessandro Giansanti, a rate strategist at ING, said investors
were still moving funds into "core" European bonds like Bunds:
"We still have the risk that the situation can get out of
control especially in terms of the banking sector," he said.
"That's why we have pressure for lower core yields."
Having rejected a proposed levy on bank deposits in exchange
for an EU bailout earlier in the week, Nicosia had turned to the
Kremlin hoping the billions of euros wealthy Russians have in
its now crippled banks would squeeze Moscow to provide help.
But with those hopes dashed, the focus was back on what
could be done before the ECB pulls the plug on Monday on the
emergency funding that is keeping the Cypriot banks afloat.
A Cypriot government spokesman said "the next few hours"
would "determine the future of the country".
U.S. stock futures pointed to gains of 0.3 percent on the
three major U.S. indexes while the dollar was down slightly
against a basket of major currencies.
In contrast to this week's tumble in stocks, the euro and
the bonds of Italy and Spain, the two countries which remain the
largest concern for euro zone watchers, have held firm.
Although Cyprus's plan to reduce its debts by seizing up to
10 percent of savings has added a new dimension to the crisis,
investors appear reassured by the promise by ECB head Mario
Draghi to do whatever needed to ensure the euro's survival.
The currency had been firm all morning and rose to a session
high of $1.2945 versus the dollar and recovered from a
two-week low against the yen after news of the agreement with
Greece to spin off Greek units of Cypriot banks.
Spain enjoyed a strong debt sale on Thursday and its 10-year
bond yields, along with those of Italy and Portugal, continued
to fall on Friday, although a Cypriot government bond due to pay
out in June saw its yield spike to a staggering 131 percent.
Key commodities such as oil and copper prices have also been
hit by Cyprus's troubles, which have rekindled worries the euro
zone crisis could damage the still-fragile global recovery.
Brent oil was holding above $107 a barrel at 1245 GMT but
was set for a second week in the red, having dropped 2 percent
drop since Monday. Copper was facing its biggest
weekly drop in four.
Carsten Fritsch, an analyst at Commerzbank, listed rising
North Sea supply and the resumption of exports from South Sudan
as two additional reasons for the weakness in oil.
"The latter might be attributable to Cyprus to some extent,"
Fritsch added. "But all this Cyprus fear is overdone."