EURO GOVT-Bunds stay lower after BoJ yen action

* BoJ yen intervention weighs on debt markets

* Bunds pare losses after U.S. data

* Germany easily sells 4.4 billion euros of 10-year paper

By George Matlock

LONDON, Sept 15 (Reuters) - German government bond prices fell on Wednesday after the Bank of Japan intervened to halt the yen's rise and investors read the move as marginally positive for riskier assets such as equities.

"Although not borne out by the mixed Wall Street shares, the BoJ action was marginally pro-risk. But it was enough to move Bund yields higher in their 2.20 to 2.52 percent range," Kenneth Broux, Lloyds TSB market economist said.

While 10-year Bund yields rose, their Irish counterparts underperformed with the yield jumping by 7 basis points to around 6.11 percent IE10YT=TWEB and sending the spread over German bond yields to its widest in five days. [ID:nLDE68E1WB]

Ahead of next week's Irish debt supply which analysts said pushed the spread wider, the market also took in a downgrade of distressed Anglo Irish Bank to triple-B plus. [ID:nWLA3015]

But the decline by Bunds was briefly buttressed by solid demand for 4.4 billion euros of 10-year Bunds at an auction in which dealers bid at an average yield of 2.39 percent - below the prevailing secondary market level. [ID:nLDE68E136]

The Bundesbank retained just 12 percent of the bonds. This represented the lowest retention rate since at least January 2009, according to Commerzbank strategist David Schnautz.

At Wednesday's settlement, Bunds yielded 2.40 percent, up 3.6 basis points on the day and at the same level seen at the time of the auction.

That was because yields headed to 2.42 percent before U.S. data was released. In the event, the data was bond-positive and provided Bunds with a chance to pare some of those losses. [ID:nLDE68E1E4]

BoJ REMAINS MAIN FOCUS

But the tone for the day was set by the surprise BoJ action -- the first intervention in the yen in six years -- and Bund futures FGBLc1 settled at 130.11, down 40 ticks on the day and around 20 ticks lower than where they traded after the Bund auction. [ID:nTOE68E027]

Still, the contract had rallied this week after bouncing off a one-month low of 129.53 on Monday -- a level representing the 50 percent retracement of the July-August rally.

"It is difficult to pin down a bond market trend," Broux said. "But any form of monetary easing should be better for risk assets than Bunds. Confusing the issue, however, is that initially at least U.S. Treasuries will benefit as the BoJ may buy more Treasuries."

Traders agreed with that view, as shorter-dated T-Notes turned positive late in the European session with dealers sensing the BoJ may buy Treasuries. [ID:nN15385216]

Longer-term a sustained weaker yen would reduce the build-up of Japanese foreign exchange reserves and lessen central bank demand for U.S. government bonds, RIA Capital rate strategist Nick Stamenkovic said.

European bourses .FTEU3 remained lower, pausing for breath after an almost uninterrupted rise in the past three weeks.

Two-year bond yields DE2YT=TWEB were 3.2 basis points higher at 0.756 percent, with 10-year yields DE10YT=TWEB up 4.1 bps at 2.408 percent.

"But it was mostly a futures-driven market, rather than cash market today," Charles Berry, a trader at LBBW in Stuttgart said.

In the euro zone's periphery, the Portuguese 10-year yield spread gave back its early widening after Lisbon sold 750 million euros in 12-month T-bills, and was last little changed around 341 basis points. However, the average yield on the paper rose sharply from the previous sale 2 weeks ago, at 3.369 percent compared with 2.756 percent [ID:nLIS002461].

With the exception of Ireland, other peripheral yield spreads were broadly steady.

(Editing by Ron Askew)