EURO GOVT-Italian bonds under fire on gobal economic worries

* Italian, Spanish yields rise to 14-year highs

* Global growth worries fuel risk aversion

* German bond yields fall to lowest in nearly 9 months

By Ana Nicolaci da Costa and William James

LONDON, Aug 2 (Reuters) - Italian bond yields soared to a 14-year high on Tuesday as worries over the outlook for global economic growth prompted crisis-weary investors to take refuge in safe-haven assets.

More weak U.S. data, on the heels of sub-par manufacturing numbers in Europe on Monday, saw investors sell riskier assets, including stocks and peripheral euro zone debt.

Bonds issued by Spain and especially Italy -- the latest focus of market anxiety thanks to its large debts -- were under particular pressure less than two weeks after a deal aimed at ring-fencing contagion but which left many questions unanswered.

Budget cuts currently being voted on in Washington could hamper the global economy's recovery further -- an additional stumbling block to an already fragile euro zone rebound.

"The fear of the market is that the world is going into recession again...and in the euro zone the peripheral markets are the ones that will suffer most," said Alessandro Giansanti, strategist at ING in Amsterdam.

A hit to global growth would hurt the euro zone's weaker economies hard, hampering their efforts to grow out from under increasingly unsustainable debt burdens and leaving little chance of a reversal in fortunes, analysts said.

It could also put more upward pressure on peripheral yields making it increasingly costly for those countries to raise funds in commercial markets.

Yields on 10-year Italian and Spanish debt rose sharply on Tuesday, surpassing recent peaks to reach their highest since 1997, while the risk premium over German debt on both countries' bonds hit the highest since the launch of the euro.

Five-year Italian yields rose to hit parity with their Spanish equivalent in a sign that the once-resilient confidence in Italian finances had been seriously eroded. .

Analysts expected those borrowing costs to keep rising, potentially providing for a tricky backdrop to a sale of Spanish debt later this week.

"In the near term, I am struggling to see any signs that the EU or the Italian and Spanish politicians are ready to offer something up to calm the markets and so by no means would I be assuming that we have seen the highs for BTP and Spanish yields already," said John Davies, fixed income strategist at WestLB.

"I think there is certainly room for further upside." ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Euro zone crisis in graphics r.reuters.com/hyb65p

Graphic comparing Italy with other high-debt euro zone

countries link.reuters.com/zem66q ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Risk-averse investors piled into German debt, pushing yields on 10-year Bunds to their lowest levels in nearly nine months and wiping out the premium those bonds offer over inflation for the first time in at least half a century. .

"In this environment, Bunds are a buy on dips. Don't look at the yields, just go for the quality," a trader said.

The rise in Bunds came in tandem with U.S. Treasuries which rose for a fourth straight day also on a troubled outlook for the global economy, even as concerns over a potential downgrade to the United States' triple-A rating remained.

The U.S. Congress was poised on Tuesday to grant final approval to a deficit-cutting package that will avert a U.S. debt default, but some fear the deal may not be enough to avoid a downgrade -- with far-reaching consequences for financial markets. . (Graphic by Scott Barber)