Spanish Economy Minister Luis de Guindos asked for up to 100 billion euros ($125 billion) in a letter to Eurogroup chairman Jean-Claude Juncker, saying the final amount of financial assistance would be set at a later stage.

He confirmed his intention to sign a Memorandum of Understanding for the package by July 9 and said the amount should be enough to cover all banks' needs, plus an additional security buffer.

The rescue, agreed on June 9, is intended to help Spanish lenders recover from the effects of a burst real estate bubble and a recession, which have piled up bad loans and sinking property portfolios.

Two independent audits last week put the Spanish banks' capital needs in a stressed scenario at up to 62 billion euros, and a full audit will be delivered in September.

Some market economists believe it is merely a prelude to a full bailout for the Spanish state, which saw its borrowing costs to soar to euro era record levels above 7 percent early last week, although they have eased to below 6.50 percent.

Spanish and Italian bond yields started to rise again on Monday as markets digested the outcome of a meeting of leaders from the euro zone's four biggest economies in Rome last Friday at which German Chancellor Angela Merkel rejected any new financial commitments to underpin the single currency.

A working document prepared by top European Union officials calls for the gradual introduction of a banking union, starting with supervisory power for the European Central Bank and developing a deposit guarantee scheme based on pooling national systems, with a levy-funded bank resolution fund.

BERLIN REJECTION

Berlin has so far rejected any joint deposit guarantee or resolution fund, as well as any mutualisation of the euro zone's debt stock or future borrowing.

Finance Minister Wolfgang Schaeuble hammered home this message in weekend interviews, saying that throwing more money at the crisis would not solve the problems, and telling Greece it must try harder rather than seeking to soften bailout terms.

"We have to fight the causes," Schaeuble told German TV network ZDF. "Anyone who believes that money alone or bailouts or any other solutions, or monetary policy at the ECB - that will never resolve the problem. The causes have to be resolved."

He cited Ireland and Portugal as countries that were succeeding in their EU/IMF adjustment programmes and said Greece had not made a sufficient effort.

Merkel and French President Francois Hollande, whose position is close to that of the top four EU officials, will have one more try at narrowing their differences before the crucial summit on Thursday and Friday.

But the German leader has shown no sign of relenting in her refusal to take on new liabilities for German taxpayers until other euro zone states agree to hand more sovereignty over national budgets and economic policies to EU institutions.

Hollande took the opposite position on Friday, saying there could be no more transfer of sovereignty until there was greater "solidarity" in the EU.

The two-day EU summit will be the 20th time leaders have met to try to find ways to resolve a crisis that has spread across the continent since it began in Greece in early 2010.

Over those 2-1/2 years, Greece, Ireland and Portugal have required sovereign bailouts and the crisis now threatens Spain and Italy. Cyprus, one of the euro zone's two smallest economies, is also on the brink of needing a bailout.

The euro zone has set up two rescue funds to try to contain the crisis, the temporary EFSF and the permanent ESM, due to come into force next month, but markets have so far judged that they contain too little money and their governance is too inflexibly to be effective.

(Writing by Paul Taylor; editing by David Stamp)

• A Permanent Economic Emergency