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BRUSSELS/MADRID (Reuters) - Euro zone finance ministers agreed on Saturday to lendSpain up to 100 billion euros ($125 billion) to shore up itsteetering banks and Madrid said it would specify precisely how muchit needs once independent audits report in just over a week. After a 2 1/2-hour conference call of the 17 finance ministers,which several sources described as heated, the Eurogroup and Madridsaid the amount of the bailout would be sufficiently large tobanish any doubts. "The loan amount must cover estimated capital requirements with anadditional safety margin, estimated as summing up to 100 billioneuros in total," a Eurogroup statement said. Spain said it wanted aid for its banks but would not specify theprecise amount until two independent consultancies - Oliver Wymanand Roland Berger - deliver their assessment of the bankingsector's capital needs some time before June 21. "The Spanish government declares its intention to request Europeanfinancing for the recapitalization of the Spanish banks that needit," Economy Minister Luis de Guindos said at a news conference inMadrid. He said the amounts needed would be manageable and that the fundsrequested would amply cover any needs. A bailout for Spain's banks, beset by bad debts since a propertybubble burst, would make it the fourth country to seek assistancesince Europe's debt crisis began. With the rescue of Greece, Ireland, Portugal and now Spain, the EUand IMF have now committed around 500 billion euros to financeEuropean bailouts. Washington, which is worried the euro zone crisis could drag theU.S. economy down in an election year, welcomed the announcement. "These are important for the health of Spain's economy and asconcrete steps on the path to financial union, which is vital tothe resilience of the euro area," U.S. Treasury Secretary TimothyGeithner said. Likewise, the Group of Seven developed nations - the United States,Germany, France, Britain, Italy, Japan and Canada - heralded themove as a milestone as the euro zone moves toward tighter financialand budgetary ties. HEATED DEBATE Officials said there had been a heated debate over theInternational Monetary Fund's role in Spain's bank rescue, whichMadrid wanted kept to a minimum. The IMF will not provide any ofthe money. In the end it was agreed that the IMF would help monitor reforms inSpain's banking sector, while EU institutions would ensure Spainstuck to its broader economic commitments. IMF Managing Director Christine Lagarde said the euro zone's planwas consistent with the IMF's estimate of the capital needs ofSpain's banks and should provide "assurance that the financingneeds of Spain's banking system will be fully met." Sources involved in the talks said there had been pressure onMadrid to make a precise request right away, but Spain hadresisted. Euro zone policymakers are eager to shore up Spain's positionbefore June 17 elections in Greece which could push Athens closerto a euro zone exit and unleash a wave of contagion. Spain'sauditors could report back after that date. Nonetheless, analysts said financial markets may be calmed by theannouncement when they reopen on Monday. "The figure of up to 100 billion is more encouraging and prettyrealistic; it's an attempt to cap the problem," said Edmund Shing,European head of equity strategy at Barclays. "The issue, however, is there is still a lack of detail about wherethe money's coming from, which is crucial. The market will treat itwith some caution until they see how it will be funded." The Eurogroup said the funds could come from either from the eurozone's temporary rescue fund, the EFSF, or the permanent mechanism,the ESM, which is due to start next month. Finland said that ifmoney came from the EFSF, it would want collateral. EU sources said there was a preference to channel money to Spainthrough the ESM, rather than the EFSF. Under the ESM, an approvalrate of 90 percent or less is needed to trigger aid, and the fundalso has more flexibility in how it operates. "That's why it's so important that the ESM ... be ratifiedquickly," German Finance Minister Wolfgang Schaeuble said. The Spanish government has already spent 15 billion euros bailingout small regional savings banks that lent recklessly to propertydevelopers. Spain's biggest failed bank, Bankia, will cost 23.5billion euros to rescue and its shareholders have been wiped out. "Whatever the formula being used, we need to say two things: firstthe innocent should not suffer for the guilty, second public moneyshould come back to public coffers," said Socialist oppositionchief Alfredo Perez Rubalcaba after speaking with Prime MinisterMariano Rajoy on Saturday morning. LIGHT CONDITIONS The race to resolve the banks' troubles comes after Fitch Ratingscut Madrid's sovereign credit rating by three notches to BBB,highlighting the Spanish banking sector's exposure to bad propertyloans and to contagion from Greece's debt crisis. It said the cost to the Spanish state of recapitalizing banksstricken by the bursting of a real estate bubble, recession andmass unemployment could be between 60-100 billion euros ($75-$125billion). Italy could yet get dragged in too. Its industry minister, CorradoPassera, said the economic situation in Italy had improved sincethe end of 2011, but remained critical. "Europe was more disappointing than we had expected, it was lesscapable of tackling a relatively minor problem such as Greece,"Passera told a conference on Saturday. While Spain would join Greece, Ireland and Portugal in receiving aEuropean financial rescue, officials said the aid would be focusedonly on its banking sector, without taking the Spanish state out ofcredit markets. That would be crucial to avoid overstraining the euro zone's rescuefunds, which would struggle to cover Spanish government borrowingneeds for the next three years plus possible additional assistancefor Portugal and Ireland. Conditions in the plan did not appear to add to the austeritymeasures and structural economic reforms which Rajoy's governmenthas already put in place. "Since the funds being asked for are to attend to financial sectorneeds, the conditionality, as agreed in the Eurogroup meeting, willbe specifically for the financial sector," de Guindos said. EU and German officials have cited national pride in the eurozone's fourth largest economy as a barrier to requesting a fullassistance program. The European Commission and Germany both agreed in principle lastweek that Spain should be given an extra year to bring its budgetdeficit down below the EU limit of 3 percent of gross domesticproduct because of a deep recession. The Eurogroup also said money could be funneled to Spain's FROBbank fund although the government would "retain the fullresponsibility of the financial assistance". Irish Finance Minister Michael Noonan said the funds would beprovided through the EFSF or ESM at the same interest rates thatapply to funds provided to other bailout countries. (Additional reporting by Luke Baker and Justyna Pawlak in Brussels, Erik Kirschbaum , Annika Breitdhardt and Matthias Sobolewski in Berlin, Antonella Ciancio in Italy, Conor Humphries in Dublin, Martin Santa in Bratislava and Tim Ahmann in Washington. Writing by Mike Peacock and Fiona Ortiz ; Editing by Bill Trott ). 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