Germany and France clashed on Wednesday over whether the ECB should take bolder steps to stem the euro zone debt crisis, with Chancellor Angela Merkel issuing one of her starkest warnings yet against fiddling with the central bank's strict inflation-fighting mandate.

In a forceful speech to the Bundestag lower house of parliament, Merkel also hit back at proposals from the European Commission on joint euro zone bond issuance, calling them extraordinarily inappropriate.

One of Germany's worst bond sales since the launch of the euro on Wednesday hinted that the two-year old crisis was beginning to threaten the bloc's paymaster, with the Bundesbank having to buy almost half of the 10-year bonds on offer.

But the public jousting underscores just how divided European leaders are on how to resolve turmoil which has accelerated to engulf big countries like Italy and Spain, and pushed out leaders in Rome and Athens.

The European currency union is based, and this was a precondition for the creation of the union, on a central bank that has sole responsibility for monetary policy. This is its mandate. It is pursuing this. And we all need to be very careful about criticising the European Central Bank, Merkel said.

I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed.

Shortly before she began speaking, French Finance Minister Francois Baroin offered a polar opposite view on the ECB's role, telling a conference in Paris that it was the central bank's responsibility to sustain activity in the currency bloc.

The best response to avoid contagion in countries like Spain and Italy is, from the French viewpoint, an intervention (or) the possibility of intervention or announcement of intervention by a lender of last resort, which would be the European Central Bank, Baroin said.

Baroin pointed to market intervention by the U.S. Federal Reserve, Swiss National Bank and Bank of England as a model for the ECB. But Merkel said it was impossible to compare the role of the ECB, which sets monetary policy for 17 countries, with those of national central banks.

The poor auction -- 3.9 billion in bids versus an offered 6 billion -- meanwhile helped prod market interest rates for Germany's 10-year bonds above those for U.S. Treasuries for the first time since October.

Bund rates have reached record lows by investors who view them as the only safe place to keep their money in a volatile euro zone, but there is concern in the background that it is Germany who will cover the cost of any solution to the crisis.

(The auction) perhaps goes to show the uncertainty surrounding the euro zone crisis has escalated in terms of the overall outlook to incorporate even Germany, said John Davies, interest rate strategist with WestLB in London.

The euro fell in response to the results and European shares hit a 7-week low.

EXTRAORDINARILY INAPPROPRIATE

With time running out for Europe's politicians to forge a crisis plan that is seen as credible by the markets, the European Commission will present a study on Wednesday of joint euro zone bonds as a way to stabilise debt markets.

Some leading European politicians, including Luxembourg Prime Minister Jean-Claude Juncker, support the bonds. But Berlin has rejected them outright as a near-term solution to the crisis, saying they would raise Germany's borrowing costs and reduce incentives for other euro zone countries to bring their fiscal houses in order.

In her speech, Merkel pointed to repeated violations of the EU's Stability and Growth Pact in the currency area's first decade, saying they had damaged market faith in the bloc's ability and willingness to crack down on fiscal rule-breakers.

And this is why I find it extraordinarily inappropriate that the European Commission is suggesting various options for euro bonds today -- as if they were saying we can overcome the shortcomings of the currency union's structure by collectivising debt. This is precisely what will not work, Merkel said.

The German leader also sent a clear warning to Antonis Samaras, the leader of conservative New Democracy in Greece, who has resisted pressure to join other parties and make a written commitment to painful austerity measures.

Merkel said Greece would not receive an 8 billion euro aid tranche it needs to avert a default next month unless Samaras signed the pledge.

Merkel raised pressure on the bloc to finalise plans for a leveraging of its rescue fund and a recapitalisation of vulnerable banks, saying guidelines were needed by the time European finance ministers meet on November 29-30.

The fact that we have been talking about (bank recapitalisations) for weeks but still have no clarity is not very reassuring, and yesterday we saw with the example of one German bank how fragile the banks themselves are, Merkel said.

Shares in Germany's second-biggest lender, Commerzbank, tumbled on Tuesday after people close to the bank told Reuters it needs considerably more capital than previously expected to meet the core capital targets demanded by the EU by mid-2012.

(Reporting by Stephen Brown, Noah Barkin, Natalia Drozdiak, Veronica Ek, Eva Kuehnen; editing by Patrick Graham)