* Chancellor and Barroso disagree on fund
* German says EFSF bond shows no need for action
(Adds more quotes, details, background)
BERLIN, Jan 26 (Reuters) - German Chancellor Angela Merkel and European Commission chief Jose Manuel Barroso failed to resolve differences on boosting the EU's bailout fund in a "lively discussion" over dinner on Tuesday, her spokesman said.
Barroso infuriated Berlin earlier this month when he called publicly for the fund, known as the European Financial Stability Facility (EFSF), to be increased.
He dined with Merkel at a government estate north of Berlin on Tuesday to discuss strategy for stemming the bloc's sovereign debt crisis and her spokesman Steffen Seibert said the two had touched on the EFSF.
"There were perhaps differences of opinion about whether it is necessary to talk about it now," he said. Seibert described their discussion on the issue as "lively" but rejected suggestions there was a full-blown dispute.
Barroso had warned ahead of the dinner that the currency bloc needed to avoid "procrastination", which was seen as a dig at Berlin and its outspoken rejection of his proposals.
He wants the fund, which was set up last May after the bloc's bailout of Greece and has already been tapped by Ireland, to be beefed up to provide stronger defences for the euro.
But Merkel and her Finance Minister Wolfgang Schaeuble rule out increasing the headline sum of 440 billion euros, wary in a year with seven regional elections in Germany of alienating taxpayers who are fed up with funding bailouts for overspending euro zone partners.
They are focusing instead on finding ways to maximise the full capacity of the EFSF, whose effective lending clout is really only about 250 billion euros because of the guarantee system required to maintain its triple-A credit rating.
Seibert signalled that Germany was ready to compromise on the fund as part of a broader anti-crisis package due to be unveiled at a March 24-25 EU summit. Berlin has made clear that it will make concessions only if its euro partners agree to adopt German-style fiscal rules limiting debt.
"In the context of a broader strategy ... we have always made clear that we will do what is necessary to adapt the capacity of the rescue mechanism to requirements, but we will decide based on the needs and there is no need for an increase at the moment," Seibert said.
Seibert said the EFSF's first bond sale on Tuesday, which was roughly nine times oversubscribed, showed investors were becoming more confident in the euro zone's strategy.
"On this basis there is no reason to decide about (an increase in) the rescue fund, only a small part of which has been tapped and which is functioning well," he said.
The EU's top economic official, Olli Rehn, was also in Germany on Tuesday, attempting to persuade Merkel's junior coalition allies, the Free Democrats (FDP), to soften their opposition to increasing the fund.
But FDP leader Guido Westerwelle, the foreign minister and deputy chancellor suffering a slump in popularity, said after meeting Rehn that he was still not convinced the euro zone bailout fund should be expanded.
(Writing by Stephen Brown; Editing by Noah Barkin)