EURO GOVT-German yields break key levels as Fed boosts stocks
* German 10-year yields break 200-day moving average
* Italian yields fall below 5 pct for first time since March 26
* Upbeat global stock markets take shine off Bund future
* Timing of potential Spanish bailout request remains key
By Ana Nicolaci da Costa
LONDON, Sept 14 (Reuters) - German 10-year government bond yields rose above their 200-day moving average for the first time in 14 months on Friday as fresh stimulus from the U.S. Federal Reserve rounded up a bright week for riskier assets.
The Fed said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the jobs market and extended the time-frame in which it would keep interest rates near zero.
The move boosted global equity markets and helped take ten-year Italian yields below 5 percent for the first time since March, as euro zone finance ministers met and pressed Spain to clarify whether it will seek financial support.
Relatively positive outcomes to a series of events that could have unsettled markets in the past few days have added to the impact of the European Central Bank's conditional pledge last week to buy unlimited quantities of government bonds.
"There is a risk-on mood across the board at the moment, that (has to do with) the Fed but certainly it still echoes from the ECB," Rainer Guntermann, strategist at Commerzbank said.
Ten-year German bond yields rose 12 basis points to 1.65 percent, crossing the moving average which came at 1.637 percent.
David Sneddon, technical analyst at Credit Suisse, said 1.70 percent was a key level, around June's high, and the retracement level of the entire 2011-2012 rally.
"1.70 percent has got to break for us to get really bearish on the market," Sneddon said.
"Our favouite trade is actually looking for the 10-30s German curve to steepen a lot further," he said, meaning he expected 30-year yields to rise faster than then 10-years.
LOWER ITALIAN FUNDING COSTS
Italian borrowing costs fell below 5 percent for the first time since March 26 as the Fed stimulus measure added further momentum to a rally dating back from late July.
The prospect of European Central bank bond buying has taken Italian and Spanish yields sharply lower, but the momentum has slowed more recently, as the central bank's intervention plans has put Spain in a catch-22.
The ECB will only intervene if Spain asks for a bailout, but the euro zone's fourth largest economy is reluctant to do so for fear of losing fiscal sovereignty and having to meet conditions that will likely hurt the growth prospects of an economy struggling with recession and high unemployment.
Meanwhile, as long as its funding costs are at more manageable levels, it is likely to put off any aid request.
"Paradoxically the promise of (intervention) means that the imperative to accept a bailout has been reduced," Richard McGuire, strategist at Rabobank said.
"Not only are funding (cost) pressures off but it knows it will be junked by (ratings agency) Moody's as soon as it does request a bailout," McGuire said.
He and others have pointed to the government at least delaying until after local elections in the region of Galicia, a long time stronghold of Prime Minister Mariano Rajoy's conservative People's Party, on October 21.
Spanish yields were little changed on the day at 5.67 percent as Spain was at the top of the agenda at a euro zone finance ministers' meeting this session.
Italian yields fell 6.6 basis points to 4.96 percent.
"Five percent (Italian yield) is certainly eye-catching but the key level from a technical point of view is 4.7 so we still have to be cautious here," said Piet Lammens at KBC in Brussels.
"If it drops below that level I would interpret it as the market basically seeing Draghi's move as a game changer," he said.
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