EURO GOVT-German Bunds advance on Cyprus crisis
* Cyprus' funding crisis raises spectre of euro exit * Safe-haven German debt seen underpinned into the weekend * ECB safety net seen containing contagion to periphery * Spain outperforms Italy after Madrid's robust bond sale By Emelia Sithole-Matarise LONDON, March 22 (Reuters) - German bond prices pushed higher on Friday as Cyprus scrambled to find a solution to a funding crisis that could lead to the island becoming the first euro zone state to exit the currency bloc. The European Union has given Cyprus until Monday to raise the 5.8 billion euros needed to secure a 10 billion euro international lifeline or face the collapse of its financial system. The Cypriot parliament was due to debate crisis measures in parliament on Friday, but they looked insufficient to raise the required funds for the bailout, without which the European Central Bank has said it would stop emergency funding to the island's banks. Talks in Moscow on a funding lifeline from Russia also ended without result. Although many in the market expect a last-minute solution to avert a euro exit, the uncertainty is feeding demand for safe-haven German debt going into the weekend, pinning 10-year yields at 2013 lows around 1.34 percent. "They (EU) are pushing for a solution to come over the weekend but we still have the risk that the situation can get out of control especially in terms of the banking sector. That's why we have pressure for lower core yields," said Alessandro Giansanti, a rate strategist at ING. German 10-year yields were last 3 basis points down at 1.346 percent while the 30-year bond yield was 6.5 bps lower at 2.196 percent, its lowest since late December. Bund futures were last 24 ticks up on the day at 144.70. "Yesterday we started off with people thinking there was going to be some sort of solution. Obviously those hopes faded over the course of the day," a trader said. "We're remaining constructive on Bunds. We still think 1.25 (percent in 10-year German yield) is a viable target for the market. The market is fairly well underpinned at the moment." A belief that the ECB's safety net will keep Cypriot contagion from spreading to other peripheral euro zone countries kept a lid on Spanish and Italian yields. Spanish 10-year yields were last 9 bps down on the day at 4.90 percent, with investors heartened by the country's successful bond sale on Thursday, which showed little sign of fallout from Cyprus' problems. Equivalent Italian yields were 6 bps lower at 4.59 percent.