* Cyprus bailout uncertainty weighs, German Ifo disappoints * Yen firms as investors seek safe haven By Anirban Nag LONDON, March 22 (Reuters) - The euro fell to a two-week low against the yen on Friday and struggled to hold gains against the dollar, after German data disappointed and as Cyprus raced against time to find a solution to its funding crisis. The European Union has given the island until Monday to raise the 5.8 billion euros its needs to secure a 10 billion euro international lifeline, or face the collapse of its financial system. Failure might also see it become the first euro zone member state to exit the currency bloc. With Russia turning down appeals for aid to Cyprus, these concerns underpinned safe-haven assets like German Bunds and supported liquid currencies like the yen against the euro. Traders expect the euro to increasingly reflect the risks to the euro zone that are emerging. While the European Central Bank (ECB) has tools in place to prevent contagion, an exit by Cyprus would still sour sentiment towards European assets. The euro fell to a two-week low of 121.44 yen after Germany's Ifo survey of business morale fell short of expectations.. It was last down 0.5 percent on the day at 121.70 yen with some Asian investors cited as buyers of short-dated options betting on drops to 121 and 120.50 yen. Against the dollar, the euro slipped below $1.2900 after the German data, very close to session lows of $1.2888 struck earlier in Asia. It was last trading at $1.2915 but traders said any bounce would draw more sellers given the increasing likelihood of a more prolonged euro zone recession. Gloomy business surveys on Thursday supported views that the ECB may have to ease monetary policy further later this year, a factor that would widen interest rate differentials between German and U.S. government bonds in favour of the latter and drive the euro lower. "The euro remains a sell on rallies to us," said Paul Robson, senior currency strategist, at RBS. "Even if there is a deal on Cyprus, the economic data coming out of the euro zone suggests more monetary policy easing. And if there is no deal on Cyprus, it will prove pretty hard for risk assets." Cypriot Finance Minister Michael Sarris was due to fly home from Moscow on Friday after failing to win support in two days of crisis talks with Russia on prolonging a bailout loan or on a possible new financing package. "Although Russia refusing a loan is not big news, the market is extremely nervy at the moment due to the lack of clarity around the Cyprus situation," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. "It's also difficult to sell the yen with investors trying to cut their risk exposure ahead of the weekend, and also because hopes for easing were offset by (new Bank of Japan governor Haruhiko) Kuroda not giving any hints of an emergency meeting yesterday." YEN FIRM The yen is bought during times of economic uncertainty and heightened financial market stress. It was firm across the board, with the dollar falling 0.6 percent to 94.30 yen. The dollar shed about 1.2 percent on Thursday as investors covered their bearish yen bets after Kuroda stopped short of calling an emergency policy meeting ahead of the central bank's next scheduled policy review on April 3-4. "Kuroda has repeatedly said he'll do as much as he can to reach the 2 percent inflation target, so an emergency meeting seemed quite plausible for a lot of people," said Makoto Noji, senior strategist at SMBC Nikko Securities. "But what the market has really put its chips on is easing on a scale that exceeds what has been reported in the media. That means there is a lot of room for disappointment."

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