* Loans to euro strugglers would last for 3 years
* German contribution could rise beyond 123 bln euros
* Opposition SPD says Germany risks footing the entire bill
By Dave Graham
BERLIN, May 11 (Reuters) - Germany's cabinet on Tuesday backed plans to stump up 123 billion euros in loan guarantees to support the euro, two days after international policymakers agreed on a $1 trillion package to restore calm to markets.
The cabinet's rapid approval of the euro plan in a special session follows criticism that Merkel took too long to back a rescue for Greece, stoking market tensions and rendering the final bailout much more expensive than it would have been.
"The measures are a clear signal that the financial markets can count on the financial stability of the euro area," government spokesman Christoph Steegmans told a news briefing, adding he hoped the plan could clear parliament by June 4.
Chancellor Angela Merkel's ministers signed off the draft law which would see Germany provide loans valid until mid-2013 to countries deemed to be insolvent by other euro states, the International Monetary Fund and the European Central Bank.
Loans would be contingent on countries agreeing measures with the IMF and the ECB to tackle their deficits.
Steegmans said the government had held the special meeting of the cabinet -- one day earlier than normal -- to underline its commitment to the package as quickly as possible.
Speaking on condition of anonymity, another member of the government said Germany's contribution to the package could be raised by up to 20 percent with the approval of the German Bundestag lower house of parliament's budgetary committee.
The approval came after EU leaders agreed at the weekend to provide 500 billion euros to stabilise the European single currency -- 440 billion euros in guarantees from euro states plus 60 billion euros in a European stabilisation fund.
Markets rallied on the European aid package at the start of the week, but on Tuesday the euro fell against other currencies and shares slipped as the relief dissipated.
Another worry for Merkel is the health of her finance minister Wolfgang Schaeuble, who was taken to hospital at the weekend and did not attend Tuesday's cabinet meeting.
Finance Ministry spokesman Michael Offer told the news conference that media speculation of Schaeuble resigning was "not an issue" between the minister and Merkel.
DREADFUL
Merkel eventually backed a Greek rescue in the face of widespread public opposition, and critics of the euro package wasted no time in condemning the government.
"We are Europe's fools again!" ran a front page headline on Tuesday on Germany's biggest selling daily, Bild.
Together with a contribution from the International Monetary Fund worth some 250 billion euros, the euro support plan was set to total 750 billion euros, or about $1 trillion.
Manfried Hochwald, a rail worker from Potsdam, said he was appalled by the bailout but did not believe Germany could afford to turn its back on the euro and return to the deutschemark.
"I think it's dreadful, but without it, the euro could implode," said Hochwald, 56. "Naturally when you link countries together, something like this can happen. But to go back to the mark? No. The euro is stronger."
The ECB has also said it is prepared to buy government bonds to underpin the euro, though details remain vague.
Germany's lower house of parliament is due to begin debating the euro bill next week, and Merkel is likely to seek as much opposition support as possible because of public hostility.
The main opposition Social Democrats (SPD) said they had not decided whether to support the euro package, and warned the country could end up footing the entire cost of the bill.
SPD parliamentary whip Thomas Oppermann told ARD television there were still too many open questions about the plan.
"What happens if other countries who get aid from the package drop out? In the worst case scenario, the Germans may have to guarantee the 440 billion euros alone, and we won't be able to do that," Oppermann said.
"After the Lehman crisis, after the Greek crisis, we're for the third time faced with the decision of approving packages the German taxpayer will probably have to pay for in the end."
The government has said the German share could rise because not all EU member states would have the means to participate.
Meanwhile, hedge funds, banks and speculators could do what they wanted on financial markets, Oppermann said.
"A substantial participation of the banks and hedge funds in the costs of the crisis must be arranged," he said.
If the government did approve a bill to introduce a financial transaction tax, then it was "not ruled out" the SPD would back the European aid package, Oppermann said.
The centre-left SPD abstained from voting on the Greek aid package last week after failing to push through an addendum in support of a European financial transaction tax.
The make-up of the Bundesrat upper house is still unclear after Merkel's centre-right coalition lost its automatic majority in elections in North Rhine-Westphalia at the weekend.
The government said it was not clear how this could affect the Bundesrat's approval of the euro aid bill. (Additional reporting by Christopher Lawton and Brian Rohan; Editing by Sonya Hepinstall)