* Benchmark yields fall to lowest in 1-1/2 weeks * Cyprus bailout plan raises fears over euro zone contagion * Investors focused on Fed meeting announcement on Wednesday By Karen Brettell NEW YORK, March 18 (Reuters) - U.S. Treasuries prices jumped on Monday in heavy volume and benchmark yields dropped to their lowest levels in a week and a half, after investors were jolted by the euro zone's decision to tax Cypriot savers as part of a bailout. Euro zone finance ministers want to tap Cyprus' savers for the country to receive a 10 billion euro ($13 billion) bailout, which triggered a run on bank deposits after its announcement on Saturday morning. Cypriot ministers scrambled to revise the plan on Monday in an effort to increase the chance of lawmakers passing the measure, postponing a parliamentary vote to approve it until Tuesday and prolonging the uncertainty for investors. "The idea that there has to be private pain in order for there to be any public bailout seems to be a bit of a regression to where we were three years ago," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. Treasuries gained on safe-haven buying as investors worried about the effect of the decision, and whether it would set a precedent for other countries in the region. "The rescue package seems to have some scope for contagion, and that will keep the markets careful," said Philip Marey, strategist at Rabobank in Utrecht. Benchmark 10-year Treasuries were last up 12/32 in price to yield 1.95 percent, after earlier falling as low as 1.90 percent. The notes ended on Friday at yields of 1.99 percent. Volumes were heavy, running at around three times the recent average, said Vogel. Thirty-year bonds gained 28/32 in price to yield 3.17 percent, with yields falling as low as 3.12 percent overnight. The bond yields ended Friday at 3.21 percent. Investors are also focused on a Federal Reserve meeting on Tuesday and Wednesday, watching for any signs of when Fed Chairman Ben Bernanke may consider tapering or ending bond purchases, after recent data pointed to an improving U.S. economy. "The question becomes how firmly Bernanke restates all of his earlier positions, given the markets view that the economic data continue to get better," said Vogel. Most Wall Street economists expect that the Fed will continue its bond purchases through 2013, before tapering or ending the buybacks in 2014. The Fed will buy between $1.25 billion and $1.75 billion in bonds due 2036 to 2043 on Monday as part of its ongoing bond purchase program.