* Spanish yields rise after 10-yr syndication announcement
* Small selloff not a sign of panic over success of sale
* Bunds driven lower by optimism over U.S. debt ceiling plan
By William James and Marius Zaharia
LONDON, Jan 21 (Reuters) - Spanish bond yields rose on Monday after Madrid announced plans to launch its first new 10-year benchmark since November 2011, but the limited scale of the reaction suggested the new issue would succeed.
Spain, which narrowly avoided being sucked into the euro debt crisis last year, was testing the market for 10-year bonds via syndication and appointed six banks to underwrite the deal according to IFR, a Thomson Reuters service, which cited sources at the lead managers.
The announcement initially sent 10-year Spanish bond yields to 5.16 percent, up around 6 basis points on levels before the news, but the selloff soon slowed.
"There's obviously been a bit of pressure but I think it's mainly dealer led. I haven't seen real money accounts coming through and selling," a trader said.
"If anything I expect a lot of end investors are just working out how it's going to be priced and how much they can afford to buy."
The sale represents a big step forward for Spain in tackling its tough funding requirements for this year. By issuing a new long-term bond for the first time since November 2011, Madrid will be hoping to show the funding problems that dogged the country in 2012 have eased.
"The market will closely scrutinise the volumes and the pricing and until that is done question marks remain but the positive for now is that the market hasn't sold off in a disorderly fashion just on this headline," said Michael Leister, senior strategist at Commerzbank in London.
"Arguably that might not have been the case in the summer last year."
German Bund futures fell 37 ticks on the day to 142.95 as U.S. Republican politicians proposed an extension of Washington's federal borrowing authority that may stop the United States reaching a self-imposed debt limit.
But with no agreement yet on the proposal, analysts said room for a further rise in yields was limited, especially since they were trading close to the top of their recent range.
The 10-year Bund yield rose 3 basis points on the day to 1.53 percent. Thin volumes due to a U.S. holiday were exaggerating the rise in yields, traders said.ž
Among market participants there was little evidence of any concerns about German Chancellor Angela Merkel's Christian Democrats narrowly losing an election in Lower Saxony.
Merkel remains favourite to win a third term in a general election in September, but the centre-left majority in the parliament's upper house means the opposition can block major legislation and initiate laws themselves.
"All support measures for the (euro) countries in the south have also been supported by the opposition," said Norbert Wuthe, rate strategist at Bayerische Landesbank, referring to the parties opposing Merkel.