LONDON Dec 5 (Reuters) - U.S government bond yields fell slightly on Wednesday after Spain failed to meet the maximum target at a debt auction, raising worries that demand for the euro zone sovereign's bonds was drying up.
* Many economists expect Spain to eventually seek a bailout from its euro zone partners to cover for a jump in financing needs next year.
* Spain sold 4.25 billion euros of bonds compared with a maximum target of 4.5 billion euros, leading to a sell-off in its debt markets and lifting assets perceived as safe-havens such as German Bunds and U.S. Treasuries.
* Ten-year U.S. T-note yields were 1 basis point lower on the day at 1.596 percent, having traded as high as 1.62 percent before the Spanish auction. T-note futures were 4/32 higher at 134-13/64.
* Craig Collins, trader at Bank of Montreal, said 1.60 percent was a key resistance level for 10-year bonds. T-note yields have failed to sustainably break below that level for the past two weeks.
* "The market was quite subdued this morning but now we're testing some key resistance levels. The catalyst seems to be that there were some debt auctions in Spain that haven't reached their maximum target," Collins said.
* Sharp moves in either direction were unlikely in the near-term as markets await the outcome of budget talks in the U.S. aimed at avoiding $600 billion euros in automatic 2013 tax hikes and spending cuts that could send the economy back in recession.
* President Barack Obama is due to give a speech to a business group later on Wednesday, in which he is expected to renew his case for tax hikes on wealthy Americans, a key sticking point in the budget talks.