EURO GOVT-Portugal debt steady after aid request; ECB hikes

* Portuguese yields steady after bailout request

* Spanish bond sale sees good demand; no signs of contagion

* Bunds stable after ECB 25 bps rate hike, Trichet comments

By Marius Zaharia

LONDON, April 7 (Reuters) - Portugal's bonds held steady on Thursday after Lisbon asked for a bailout, but yields may rise again as political uncertainty remains and investors are not convinced the country can grow out of its debt crisis.

German Bund yields were steady after the European Central Bank raised interest rates as expected, but they are seen resuming their rising trend, especially if future data and ECB comments bring in expectations for a second hike to June from July.

Yields on Portuguese government bonds fell by up to 35 basis points on Wednesday, which traders said suggested there may have been some anticipation of the aid request ahead of an official statement late in the day.

But the relief may be short-lived if past events are an indicator -- Greek and Irish yields resumed their rise shortly after bailouts were agreed as investors began pricing in debt restructuring risks once the current EFSF bailout fund is replaced by a new mechanism with a preferred creditor status.

"There's no fundamental reason for why Portuguese markets should show a sustained rally," said Investec chief economist Philip Shaw. "We don't know what the terms are. We don't know what's going to be happening ... after the mid-point of 2013."

But analysts say that Portuguese bonds have a chance of holding steadier than Irish and Greek paper after the June 5 polls if they stick to the terms of the deal.

"When you look at the underlying metrics on Portugal, the banking sector isn't as bad as Ireland and the public sector is nowhere near as bad as Greece so if the right consensus is reached about austerity and a financing package is forthcoming, it could be more beneficial for Portugal than the other two," said Nomura rate strategist Sean Maloney.

Maloney suggested trading the ranges already seen for Portuguese bond yields with Wednesday's euro lifetime highs -- 9.10 percent for 10-year bonds and 10.26 percent for five-years -- as a limit for now, with potential for moves to around 100 basis points lower.

Commerzbank strategists said Portugal could face further credit rating cuts, which would push the country to "junk" status and trigger more forced selling from accounts unable to hold lower-rated paper.

June Bund futures FGBLc1 were 9 ticks higher at 120.71. Two-year bond yields DE2YT=TWEB were 1.1 bps lower at 1.831 percent, with 10-year yields DE10YT=TWEB also 1.1 bps down at 3.417 percent.

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Graphic on Greek and Irish bond yields post-bailouts link.reuters.com/fuq88r

Graphic of Irish and Portuguese yield curves converging link.reuters.com/mar88r

Timeline on Euro zone debt crisis in the last year link.reuters.com/xur78r

Reuters Insider: Will Aid for Lisbon Save Spain and Italy? link.reuters.com/cyq88r

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JUNE OR JULY

ECB President Jean Claude Trichet said the hike was not the start of a series but added the bank would "monitor very closely" upside risks to price stability, words analysts say traditionally signal a pause for a month before another rise.

Short-dated rates for June EUROIS=BRKR rose four basis points to 1.18 percent, implying a 60 percent probability of a rate hike compared with around 40 percent before Trichet's comments. A hike is fully priced in at July's meeting.

"The key thing is that the market is going to be thinking 'If they are going to hike again, when do they hike -- June or July?' It depends ... on headlines from ECB speakers in coming days," said Cagdas Aksu, fixed income strategist at Barclays Capital.

"If the market prices a little bit more for June, (Bunds) can sell off more. (Otherwise) for the next couple of weeks Schatz yields are probably going to trade in a range of 1.75-1.90 percent."

Elsewhere, Spain comfortably sold just over 4 billion euros of new three-year bonds, staving off contagion risks for the time being. [ID:nLDE7360V6]

"The modestly lower accepted yield ... underlines Spain's continuing insulation from the debt crisis across its borders," said Richard McGuire, rate strategist at Rabobank. (Additional reporting by Kirsten Donovan; Editing by Hugh Lawson)