EURO GOVT-Spain yields rise on bank rescue concerns
* Spain's Rajoy secures backing in Galicia * Concerns about terms of bank rescues hit sentiment * Timing of any Spanish bailout still uncertain By Emelia Sithole-Matarise and Marius Zaharia LONDON, Oct 22 (Reuters) - Spanish bond yields rose from six-month lows on Monday as differences within the EU over support for its struggling banks offset the impact of a regional election win for Prime Minister Mariano Rajoy. Rajoy's party won the election in Galicia on Sunday, receiving a boost for his austerity drive and removing a potential obstacle to a bailout, an eagerly-awaited move that would clear the way for the European Central Bank to start buying Spanish bonds. Markets believe Spain will seek aid but are uncertain about the timing. Germany's refusal to allow the euro zone's ESM rescue fund to take over liability from Spain and other states for past bank rescues took the shine off Spanish bonds, which rallied last week after Madrid retained its investment grade credit rating. Spain had hoped to get the cost of rescuing banks hit by the collapse of a real estate bubble off the state's balance sheet, easing its debt burden without recourse to a sovereign bailout. "It's a very mixed picture at the moment because on the one hand you have the prospect of a bailout and ECB (bond buying) but on the other the whole issue of legacy (bank) assets is a concern. The market will try to go back and forth on this. It's not a ...clear-cut bet," one trader said. Spanish 10-year yields were 8 basis points higher on the day at 5.44 percent, having rallied around half a point last week to 5.297 percent, their lowest since early April. Two-year yields were 9 bps higher on the day at 2.89 percent. Market wariness over when Spain will seek a bailout and the details of the ECB's bond purchase scheme were stemming a further rally in peripheral debt. "The market is wondering whether there's going to be a request for an (aid) memorandum. If we don't get something along those lines the back end of the (Spanish) curve will become a little bit weaker," RBS strategist Harvinder Sian said. ASMUSSEN WEIGHS ON BUNDS German Bunds started the session stronger, but gave up their gains after ECB Executive Board member Joerg Asmussen said the bank would do everything in its power to show the euro is irreversible. Bund futures fell 24 ticks to settle at 139.87, having earlier risen as high as 140.30. Cash 10-year Bund yields were 1.3 bps higher at 1.61 percent. "Asmussen's comments are weighing a bit on the Bund. Also, above 140.00 Bunds find decent support ... If we can break that we might be heading towards 139.50, but we're trading very tight ranges at the moment," another trader said. KBC strategist Piet Lammens recommended investors sell Bund futures on any move towards 140.70, the neckline of a double-top formation -- a chart pattern that technical analysts say could signal a future price fall. "The central bank has decided on very far-reaching measures and that should provide a backstop and keep a 'risk on' sentiment," Lammens said.
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