UPDATE 3-Spain's caja IPOs on track despite market turmoil

* Bankia sets retail IPO price at top of range

* Civica also sets maximum retail price at top of range

* No guarantee conditions will improve later

* European banking stress tests also weigh (Adds Bankia statement)

By Jesus Aguado and Sarah Morris

MADRID, 12 July (Reuters) - Two Spanish savings banks pushed on with initial public offering (IPO) plans on Tuesday, despite the worsening euro zone debt crisis pummeling the country's bank shares and sovereign bonds.

Banca Civica and Bankia are in the middle of book building to try to raise a combined 5.5 billion euros (US$7.8 billion) in public share offerings, but the environment has turned ugly as European leaders failed to take definitive action on Greece's debt crisis, threatening market contagion among debtor nations.

Bankia and Banca Civica are offering steeply discounted prices to investors, under pressure to get the deals done because they are seen as a key test of whether Spain is managing to strengthen its banks.

Spain's banks were laid low by reckless lending during the country's property boom.

Bankia, which groups seven former savings banks to form Spain's third biggest bank, set the maximum retail price for its IPO at 5.05 euros per share on Tuesday, the top end of the indicative price range of 4.41-5.05 euros.

In a statement to securities regulator, Bankia also said that it had demand for 73 percent of its retail tranche taking the 5.05 euros price into account, with demand rising to 83 percent at the lower end of the price range.

Bankia hopes to raise up to 4.6 billion euros in its IPO and is relying heavily on support from small investors, who can buy up to 60 percent of the issue in packages from 1,000 to 250,000 euros.

Retail investors now have three days to pull out of the offer, while Bankia continues to woo institutional investors and sets its final price on Monday.

Run by former International Monetary Fund head Rodrigo Rato, the bank is advertising 1,000-euro share packages on bus stop billboards, radio, television, newspapers and the Internet.

Civica also set its maximum retail price for its IPO on Tuesday at 3.8 euros per share, the top end of the indicative price range of 2.7-3.8 euros per share, and said demand for its retail tranche was 2.05 times oversubscribed.

Civica, a merger of four regional banks, aims to raise up to 945 million euros in its share offer. It said earlier on Tuesday it would fix its final price on July 19 for an expected stock market debut on July 21. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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Spanish shares fell steeply on Tuesday morning and the country's sovereign debt risk premium soared, but both normalized by the end of the session as European markets got a breather from reported European Central Bank bond buying.

"At this point I do not rule out that one of the (IPO) processes will derail ... If Bankia manages to get to market but Banca Civica does not, that is not a big deal, but if the opposite happens, that will be very dramatic," said Enrique Quemada, chief executive of business consultancy OnetoOne Capital Partners.

Also hanging over the IPOs is uncertainty over which Spanish banks might fail the Europe-wide banking industry's capital adequacy stress tests in results due this Friday.

"You have to also take into account that some Spanish banks are also expected to fail the stress tests," said Javier Barrio, an analyst at BPI in Madrid.

With its damaged savings banks considered a vulnerable point as investors calculate sovereign risks in Spain, the government has demanded a massive recapitalisation in the sector.

Some banks will tap a government fund to lift their capital, while a few, such as Bankia and Civica, have decided to seek private investment.

When a decade long property bubble burst in 2007, many Spanish banks were left exposed to property developers and have taken onto their books a lot of undeveloped lots that are now difficult to sell.

"It's a bad moment but the problem for the savings banks is they have to launch because they have an established calendar and they have no guarantee that the situation will be any better if they leave the recapitalisation for further ahead," said a fund manager at a Spanish brokerage, who asked not to be named. ($1=0.702 euros) (Additional reporting by Sonya Dowsett; writing by Fiona Ortiz; editing by Greg Mahlich, Bernard Orr and Andre Grenon)