EURO GOVT-Bunds rally post-auction; 30-yr yields at new lows

* Bunds rally post-auction with investors risk averse

* Germany sells 5 billion euros of new Bunds

* Thirty-year bond yield below 3 percent for fist time

By Kirsten Donovan

LONDON, Aug 18 (Reuters) - Longer-dated German bonds rallied on Wednesday after Berlin drew strong demand at a 5 billion euro sale of new ten-year paper at a record low average yield.

German 30-year bond yields fell below three percent for the first time ever as the prospect of interest rates staying low for a long time pushed investors seeking returns into longer dated paper.

Markets expect central banks in major economies to do less -- or wait longer -- to tighten policy after downbeat economic assessments from the U.S. Federal Reserve and Bank of England this month, as well as data showing Japan's economic growth slowed to a crawl in the second quarter.

"Clearly, there is still demand for quality paper even at these record low yield levels and (it) reflects the high degree of uncertainty on investors' minds at the moment," said Orlando Green, Credit Agricole rate strategist.

Germany drew demand of 7.9 billion euros at the auction, with the average yield at just 2.37 percent [ID:LDE67H0XE], after Bund yields marked record lows earlier this week.

The same worries over the economy have also returned investor attention to the troubles of some euro zone economies like Portugal, Spain and Ireland, struggling to get budgets under control amid anaemic growth.

Portugal sold 1.525 billion euros in two treasury bill issues on Wednesday, more than the initially indicated offer, with yields rising on the 12-month maturity and falling sharply on the three-month paper [ID:nLIS002444].

FORCE

Italian and Spanish peripheral euro zone bond yield spreads narrowed slightly, while others were broadly steady, after auctions a day earlier drew solid demand, easing worries about funding pressures.

"The primary force is risk appetite, Bunds are well underpinned at the moment with investors risk averse," said Nick Stamenkovic, rate strategist at RIA Capital.

"Until the cloud clears for the U.S. Economy, it's difficult to see peripheral markets rallying sharply,"

At 1045 GMT, September Bund futures FGBLc1 were 41 ticks higher at 132.10 although still a little way off Monday's high of 132.30.

"Once 132.30 is broken, the Bund should target the upper end of the tentative rising channel, which comes 133.94 today," Societe Generale said.

Ten-year yields DE10YT=TWEB were down 3.5 bps at 2.327 percent and two-year bond yields DE2YT=TWEB were down a basis point at 0.658 percent.

Thirty-year bond yields DE30YT=TWEB fell as low as 2.981 percent and were last 5 basis points lower at 2.983 percent., while 30-year interest-rate swaps were at 2.92 percent, holding near Tuesday's lows.

The moves flattened the 10/30 yield curve to 65 basis points, the least in a year. The 2/10 year yield curve meanwhile was around 2 bps points flatter at 167 bps.