UPDATE 2-Debt-hobbled Cyprus says has Russian assurances on aid

Wed Jan 30, 2013 9:27am EST

* Cypriot president says Russia can "save" island

* Island hobbled by exposure to debt-wracked Greece

* Russia's Putin quoted as saying stands ready to assist

By Michele Kambas

NICOSIA, Jan 30 (Reuters) - Debt-hobbled Cyprus limped closer to an international financial bailout on Wednesday, saying it had won Russian assurances that Moscow would join in international efforts to salvage the island's finances.

The Mediterranean nation, one of the euro zone's smallest economies, applied for aid from the European Union and the International Monetary Fund last June.

Talks are complicated by the sheer size of the bailout, which could equal the 17.5 billion euro size of the Cypriot economy, and German misgivings about the island's commitment to financial transparency because of its close ties with Russia.

Cyprus, shut out of financial markets for almost two years, got a 2.5 billion euro bilateral loan from Moscow in late 2011.

Russian President Vladimir Putin discussed the situation with Cypriot President Demetris Christofias on Tuesday, a statement from Cyprus's presidency said.

"President Putin assured me that the Russian Federation is ready to contribute with the European Union in the financing of Cyprus," the statement quoted Christofias telling Cypriot reporters during a visit to Belgrade.

"I strongly believe that this assistance can save us," Christofias said.

It is not clear what form any Russian assistance might take. Cyprus has already asked for a five-year extension in repaying its 2.5 billion euro loan to Moscow, to 2021 from an initial 2016.

Last week, European Economic and Monetary Affairs Commissioner Olli Rehn told Reuters he believed it was only fair Russia make a contribution to the bailout effort because of the significant Russian business presence on the island.

Christofias, the EU's only Communist head of state and a fluent Russian speaker, said he spoke to Putin by phone on Tuesday evening. A government source said Putin made the call.

Russian Prime Minister Dmitry Medvedev was quoted as saying on Monday that Russia could provide support to Cyprus under certain conditions but the island itself and the European Union would have to take the biggest share in a potential bailout.

Cyprus has been toiling under financial stress since its two largest banks sought state support after losses on an EU-sanctioned writedown on privately-held Greek sovereign debt.

Shut out of markets, it has been increasingly relying on high-yield short-term borrowing.

Unless a bailout were settled soon, the island could start causing wider problems, according to former euro group Chairman Jean-Claude Juncker.

"If we don't definitively solve the problem case of Cyprus, there is a contagion risk even from this very small national economy," Juncker was quoted as telling Austria's Kleine Zeitung in an interview published on Wednesday.

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