UPDATE 1-No decision till June on how to increase EFSF -- draft

Wed Mar 23, 2011 7:56am EDT

* No decision on how to enlarge EFSF this week -- draft

* EU summit also expected to make no ground on Ireland

* Lack of new decisions could disappoint markets

(Adds details)

BRUSSELS, March 23 (Reuters) - European Union leaders will take no decision at a summit later this week on how to strengthen their multi-billion euro bailout fund, a move that is likely to disappoint financial markets.

It was expected that a summit on March 24/25 would agree on whether guarantees should be used to increase the effective capacity of the European Financial Stability Facility (EFSF) to 440 billion euros ($624 billion) from about 250 billion euros, but leaders have now put that decision off until mid-year.

The delay is in part because of politics -- Finland has dissolved its parliament ahead of an election and cannot take any formal decisions at this time -- and partly due to the need to coordinate with the setting up of the European Stability Mechanism (ESM), a permanent fund to replace the EFSF in 2013.

"The preparation of the ESM treaty and the amendments of the EFSF agreement, to ensure its 440 billion euro effective lending capacity, will be finalised so as to allow national procedures to be completed in good time for signature of both agreements at the same time before the end of June 2011," draft conclusions prepared for the March 24/25 summit read.

The delay is likely to be a disappointment to financial markets, because the summit had been built up as being a definitive moment, with leaders finally taking the decisions needed to get on top of the year-long debt crisis.

The euro EUR= hit a session low against the dollar after the news that no decision would be taken.

Sources said the summit was also unlikely to reach any decision on lowering the interest rate on bailout loans provided to Ireland, and that the Irish were not expected to give any ground on their low corporate tax rate, which some other euro zone member states want the Dublin government to increase.

"I fear Monday could be Black Monday for markets," one EU financial source said, referring to the fact that the Thursday-Friday summit is likely to produce much less than financial markets have been built up to expect.

(Reporting by Julien Toyer and Luke Baker, editing by Rex Merrifield)

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