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EURO GOVT-Spanish yields rise as doubts set in over aid
* Spanish, Italian yields nudge higher
* Bunds pare gains as German court ruling goes ahead
* Netherlands faces market before election
By Kirsten Donovan
LONDON, Sept 11 (Reuters) - Spanish and Italian bond yields rose on Tuesday, succumbing to profit taking which may accelerate with no signs of Spain moving closer to requesting a bailout, while Greece's talks on further aid stalled.
Safe-haven German Bunds reversed most of their early gains after Germany's Constitutional Court said it would not postpone Wednesday's long-awaited ruling on the legality of the euro zone's bailout fund.
The decision is important as the European Central Bank can only buy government bonds in conjunction with the fund but had faced a new legal challenge by a lawmaker from Chancellor Angela Merkel's party which threatened to delay proceedings.
Few market players expect the court to rule the fund unconstitutional, but some think the judges could attach tough conditions on any future aid Germany may grant to other euro zone countries. .
"There's generally a negative news tone this morning. Spain is looking at the terms of its bailout and being quite coy about what's going on," said Rabobank rate strategist Lynn Graham-Taylor, also highlighting risks associated with the German court ruling, Dutch elections and Greek talks on further aid.
"Ultimately the ECB have announced a bond buying programme but they haven't bought any bonds and until we've seen the colour of their money, markets are not going to go bullishly risk-on."
Spanish 10-year government bond yields were 5 basis points higher at 5.79 percent, with the Italian equivalent up a similar amount at 5.23 percent.
Short-dated Spanish and Italian yields rose even more.
Spanish Prime Minister Mariano Rajoy told Spanish television he would not accept a rescue that dictated spending cuts.
German Bund futures were 24 ticks higher at 140.56, having retreated from a session high of 140.98, with 10-year Bund yields down 2 basis points at 1.50 percent.
"There are worries about Greece leaving the euro again, Spain is playing hardball and I'm not sure the European Central Bank are ever going to actually buy bonds," a trader said.
"There's a lot of good news priced into the periphery."
UBS technical analyst Richard Adcock said Bund futures would need to close above resistance in the 140.66-140.93 area, the 38 percent retracement of the latest sell-off, to extend gains, while a trade under Friday's 139.43 low would trigger a "much deeper" sell-off.
"Bunds are still at an interesting stage...Does the latest weakness represent a test of the lower extremes of a broad sideways range...or is this the final stage of a long-term bearish shift? The jury is still out," Adcock said.
Greece acknowledged it was having trouble persuading its international lenders to accept a plan crucial to securing further loans.
The Netherlands will sell up to 2.25 billion euros of 10-year bonds, a day before a parliamentary election, mild concern over which may dampen demand for the sale, analysts said.
"No single party is likely to have a majority in the parliament," ING rate strategist Alessandro Giansanti said in a note." The risk for Dutch spreads arises from the scenario that the country will stay without a government for a long period."
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