* 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 lower.
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 banks.
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 months.
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 unresolved.
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."