EURO DEBT SUPPLY-Spiking funding needs to pressure Spain in 2013

* Spanish gross issuance to rise, seen topping 100 bln euros

* Weight of supply seen pushing borrowing costs higher

* Funding needs fall elsewhere in bloc, Italy issuance down

LONDON, Dec 5 (Reuters) - Spain's borrowing needs will jump in 2013, bucking the euro zone trend and nudging Madrid closer to requesting a bailout.

While budget cuts mean combined euro zone bond issuance will fall by 6 percent to just below 800 billion euros next year, Spanish bond supply will jump by nearly a quarter to 106 billion euros, according to estimates from eight banks.

Spain's borrowing target could easily grow if its struggling regions remain unable to raise money on their own.

Whether Madrid seeks international help or battles on solo to avoid the perceived stigma of a bailout will determine the cost of borrowing, not only for the euro zone's fourth biggest economy but also for its other members.

Although investors are comfortable lending to Madrid at the moment, thanks to the European Central Bank's pledge to buy bonds if needed, the growing weight of supply will test that appetite and drive borrowing costs up next year.

"Spain has to issue significantly more than this year. It's a tough task. It's hard to see how this increase in supply will be met by an adequate increase in demand," said Christopher Kind, head of asset allocation at Frankfurt-Trust Asset Management, that manages assets worth 16 billion euros.

Spain met its funding target for 2012 early and has continued to sell bonds. This cash is earmarked for 2013, but may be needed to cover a 2012 deficit expected to exceed target.

Earlier this year Spanish bond yields spiked to unaffordable levels when international buyers sold their holdings and local banks became reluctant to buy new issues, prompting the ECB to commit to unlimited bond purchases if Madrid sought a bailout.

While the promise of ECB intervention has made investors wary of selling their holdings -- effectively betting against the central bank -- questions remain over whether the market will be willing to buy even more debt from Spain.

"To sell such an amount of bonds you will have to have foreign interest," said Chiara Cremonesi, fixed income strategist at Unicredit.

"The foreigners, I don't think they will come back in enough size to finance that amount of debt next year. Probably then you will see some weakening in the demand at auction and, once you see that, Spanish bonds will most probably come under pressure."

Rising yields, along with a deepening recession and likely rating downgrades into junk territory -- all three big ratings firms have a negative outlook on Spain -- mean the frailties witnessed in 2012 could quickly return, putting pressure on Madrid to seek a bailout.

"It's not supply alone that it's going to push them, supply would be one of the factors," said Michael Leister, strategist at Commerzbank in London.

"A downgrade might happen, the economy may deteriorate further and if the sentiment in the euro zone deteriorates as well we may have a perfect storm."

Most analysts polled by Reuters expect such a request sooner rather than later.

IN SPAIN'S THRALL

Such is the focus on Spain, its fortunes are likely to dictate the rates at which low-risk core and higher-yielding peripheral issuers elsewhere in the euro zone can borrow.

German yields have generally fallen when those on Spanish bonds have risen during 2012 as investors seek the safety and liquidity offered by Bunds, on occasions squeezing the return on two-year debt into negative territory.

A rally in peripheral debt expected to follow a Spanish bailout request and the beginning of ECB bond purchases should see German yields rise but analysts saw this as no hurdle to meeting its funding need of around 178.5 billion euros.

Similarly, France was not expected to encounter major difficulty raising funds for 2013, even though it is forecast to be the bloc's biggest issuer in gross terms. Estimates are for 192 billion euros of bond issuance, although the debt agency will offset this with buybacks.

"Core issuers will probably have to pay up but just a little more; there won't be a big selloff. Euro zone growth is still likely to be subdued," said David Keeble, global head of fixed income strategy at Credit Agricole in New York.

Any rise in Spanish yields is likely to push Italian borrowing costs higher, but to a lesser extent than of late due to a steep fall in 2013 borrowing.

An average of analyst estimates put Italy bond funding needs at 186 billion euros, well below 2012's 235 billion euros due to lower debt repayments and a narrower budget deficit.

"At the margin (the drop) is positive. But debt is still over 120 percent and that's a key factor for investing in Italy," said Sandra Holdsworth, investment manager at Kames Capital, which manages some 400 million pounds of bonds.

BACK TO MARKET

Ireland is also likely to step up its return to the bond market in the next 12 months, targeting issuance of around 10 billion euros as it looks to repay 5.6 billion of maturing debt and wean itself off the bailout programme it entered in 2010.

For Portugal, also aiming to regain funding independence after a bailout, returning to capital markets will be tougher as the country struggles to generate growth and reduce its debt.

"The central scenario is that Ireland comes back to the market. For Portugal it is more difficult. They might, towards the end of the year," Commerzbank's Leister said.

"They're on the right path but it is highly contingent on the general (euro zone) market sentiment. In a way you could say it's not in their hands."