Euro zone finance ministers called on Monday for an increase in the effective lending capacity of the currency bloc's rescue fund, but EU paymaster Germany said there was no urgency and it would be March before a firm plan was in place.

Growing realization that a deal to widen the bailout fund was not imminent caused the euro to retreat on Monday from a one-month high reached after successful debt auctions by Portugal and Spain last week.

Dutch Finance Minister Jan Kees de Jager said it was vital that euro zone governments under pressure forge ahead with structural economic reforms and deficit-cutting to make debt levels sustainable.

It was also important that the full amount earmarked for states shut out of credit markets be available if required, not the smaller amount that can actually be tapped now because of the need to put cash aside, he said.

We have an emergency fund in place. We will look if it needs an increase... so as to have 700 billion euros ($932 billion) available, instead of a lower amount, De Jager said on arrival for the monthly meeting of the 17-nation Eurogroup.

A Reuters poll of bank analysts across Europe found most expect euro zone policymakers eventually to increase the firepower of the European Financial Stability Facility by 260 billion euros to 700 billion.

But German Finance Minister Wolfgang Schaeuble said that with bond markets calmer, there was no rush to take action now and work was being prepared for a late March EU summit.

There will not be results today, the market developments in the last week have, thank God, taken any urgency out of these discussions, he told reporters.

ENHANCEMENT NEEDED

The European Commission and the European Central Bank called last week for the region to boost the effective capacity of the rescue fund -- the European Financial Stability Facility -- as well as expanding its scope of operations.

ECB President Jean-Claude Trichet reiterated the central bank's call for improvement of the fund qualitatively and quantitatively.

By qualitative enhancement the ECB most likely means taking over the purchases of government bonds on the secondary market, now done by the central bank, ECB Governing Council member Athanasios Orphanides indicated.

If the EFSF were to buy government bonds, and that improved the functioning of the monetary policy transmission mechanism, that might render some of the ECB's non-standard measures no longer necessary, Orphanides told Bloomberg in an interview.

Germany has so far opposed several proposals for widening the EFSF's role raised by the European Commission and other countries such as bond-buying in the secondary market, providing standby credit or lending to banks.

The ECB disclosed that it bought 2.3 billion euros in euro zone government bonds last week, its biggest weekly purchase for more than a month. The buying helped calm markets, enabling Spain and Portugal to stage successful auctions.

Madrid canceled another planned bond auction on Monday and decided instead on a 10-year bond sale through a syndicate of banks, to raise 6 billion euros.

The decision would help it to sell more debt while the going was relatively good, an analyst said, though the increased amount meant investors pushed up Spanish risk premiums slightly.

Belgium is also seeking an opportunity to place debt with a syndicate of banks and Portugal plans one for the first quarter, as fiscally stretched sovereign issuers elsewhere in Europe seek to cut spiraling financing costs.

The EFSF can borrow money on markets with euro zone government guarantees of up to 440 billion euros.

But because it wants to have a triple A credit rating, the effective amount it can lend to countries in need is only around 250 billion. A potential bid for help from Portugal and Spain would stretch its resources to the limit, coming on top of a support program for Ireland and Greece.

The finance ministers were to assess the state of the Greek rescue and of the Irish bailout and Ireland said it would seek more favorable interest rates on the EU's portion of Dublin's EU-IMF loan package.

GERMANY KEY

Germany, the biggest euro zone economy, is key to any agreement on changes to the EFSF. France appeared open to talks on an increase in the fund's lending capacity.

It needs to be replaced and reinforced. We have started talks... and agree on the big principles, we are looking at how it could be applied, French Economy Minister Christine Lagarde told French radio on Monday.

Germany is pushing for broader anti-crisis measures to be agreed in March and Lagarde expressed similar views on Monday.

We can't have a little hike here and some flexibility there, a reinforcement of discipline. We will need a complete package and I hope that we will submit one in March, she said.

A euro zone source said the key problem for Germany was how to achieve a greater effective lending capacity without raising the amount of government guarantees -- a politically risky move that would require parliamentary approval.

Berlin also wants other members of the currency bloc to be forced to introduce balanced budget legislation similar to the debt brake rule it adopted in 2009.

(Reporting by euro zone bureau, writing by Paul Taylor, Jan Strupczewski and Rex Merrifield, editing by Patrick Graham)

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