Europe set to bail out Ireland as debt crisis grows

* Ireland would be second euro country to get emergency aid

* EU finance ministers to meet in Brussels on Sunday

* Sarkozy talks with Germany, Italy, Spain, Portugal leaders

By Carmel Crimmins and Luke Baker

DUBLIN/BRUSSELS, Nov 28 (Reuters) - European ministers are expected to sign off on an 85 billion euro ($112.7 billion) rescue for Ireland on Sunday, making it the second euro member after Greece to require a bailout in the face of a crippling debt crisis.

Finance ministers from the 16-nation euro zone are due to meet in Brussels from 1 p.m. (1200 GMT) to discuss the emergency loan package Ireland needs to stem mounting losses at its banks and cope with a massive budget deficit.

Ministers from the broader 27-nation European Union will also gather to approve the aid, which will come from a 750 billion euro rescue facility the bloc set up back in May after Greece was pushed to the brink.

By committing funds for Ireland, Europe hopes to draw a line under a crisis that has severely dented confidence in the 12-year old currency bloc.

But investors could soon turn their attention to other high-deficit countries like Portugal or Spain in what is turning into a high-stakes showdown between markets and politicians.

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In a flurry of phone calls over the weekend, French President Nicolas Sarkozy spoke with the leaders of Germany, Italy, Spain and Portugal, underscoring the seriousness of a crisis that has been haunting the euro zone for the past year.

Tens of thousands of Irish took to the streets of Dublin on Saturday to protest against the looming bailout and Irish opposition parties warned they would not accept a deal that imposed high interest rates on the EU/IMF loans.

The parties, Fine Gael and Labour, are expected to rout unpopular Prime Minister Brian Cowen's Fianna Fail party in an election that is likely to take place within months. They have said they would be bound by a rescue deal but may try to renegotiate details.

Both parties want bond investors who lent money to Irish banks to take on a bigger share of their country's bailout burden, rather than foisting it all on Irish taxpayers.

Jitters sent the shares of European banks which hold the debt of Irish banks tumbling on Friday. The euro also fell to a two-month low against the dollar and the borrowing costs of peripheral euro zone countries like Ireland, Portugal and Spain stood near record highs.

PORTUGAL AND SPAIN

European officials have been at pains to play down the links between Ireland and Portugal, which is widely seen as the next euro zone "domino". Troubles in Portugal could spread quickly to its larger neighbour Spain because of their close economic ties.

Unlike the other financially weak countries on the euro zone's southern periphery, Spain is on track to meet its deficit reduction targets and Prime Minister Jose Luis Rodriguez Zapatero has ruled out seeking aid. [ID:nLDE6AQ038]

Nevertheless, the government in Madrid has taken a number of steps to reassure markets about its finances in recent days, announcing that it will publish monthly updates on its public debt and move quickly to reform the pension system.

Greece, which secured a 110 billion euro rescue half a year ago, is struggling to meet its deficit targets and local newspaper Realnews quoted a senior IMF official on Saturday as saying the country's loan repayment period could be extended by five years to make it easier to service its debt. [ID:nLDE6AQ08L]

Such a move could meet strong resistance in countries like Germany, which as Europe's largest economy is shouldering the biggest share of the rescues.

A weekend Emnid poll in weekly magazine Focus showed that 48 percent of Germans are in favour of supporting countries like Greece and Ireland, while 47 percent oppose it. (Editing by Ralph Boulton; writing by Noah Barkin)