* Cyprus govt steps in to recap second-largest lender
* Island requested EU bailout last week
* Troika start assessing Cyprus needs Tuesday
(Releads, adds detail)
By Michele Kambas
NICOSIA, July 2 Cyprus, which applied for an EU
bailout last week, acquired 1.79 billion euros ($2.3 billion)
worth of shares in the island's second-largest lender, in a
previously announced move to help it meet minimum capital levels
depleted by heavy exposure to debt-crippled Greece.
The finance ministry said on Monday it had bought the shares
in Cyprus Popular Bank, after the state pledged on May
17 to underwrite Popular's attempt to raise 1.8 billion euros in
Cyprus, which assumed the rotating EU presidency on July 1,
became the fifth euro zone member to seek a financial lifeline
from its European partners last week.
A team from the European Commission, the IMF and the
European Central Bank were expected to start consultations with
authorities on Tuesday.
Cyprus's banking system has been heavily exposed to Greece,
with Popular and Bank of Cyprus posting mammoth losses
on writedowns of Greek sovereign paper, agreed by European
leaders to make Greece's debt pile more manageable.
The cost to bail out both banks, at about 2.3 billion euros,
represents a sizeable chunk of Cyprus's 17.3 billion euro
economy and one the island can ill afford while it is shut out
of international debt markets.
Private demand for shares in Popular Bank's rights issue was
minimal and the bank said it had received applications for just
3.013 million euros worth of stock.
Three days before the expiry of a European Banking Authority
deadline for bank recapitalisation to meet capital strength
benchmarks, Bank of Cyprus also asked for 500 million euros in
temporary state support. That bid would be discussed in the
context of the bailout.
"Banks' capital needs will be assessed after a thorough
examination of their assets and in respect of EU state aid
rules," the finance ministry said.
($1 = 0.7880 euros)
(Editing by Jon Loades-Carter and David Holmes)