* Spain selling new 10-year bond via syndication
* Market nervy that glut of issuance could be hard to digest
* Bunds stabilise after German ZEW undershoots forecasts
By Emelia Sithole-Matarise
LONDON, May 14 (Reuters) - Spanish borrowing costs stabilised on Tuesday as signs of strong demand at a sale of new 10-year debt halted a recent selloff in the country's bonds.
Spain could raise as much as 7 billion euros from the syndicated sale, a source at the economy ministry said, up from an earlier indication of 5 billion after initial demand for the debt topped 14 billion euros.
The sale confirmed market speculation last week that hoisted Spain's 10-year yields to two-week highs on concerns that more issuance in a short time could be hard for the market to digest.
Hours earlier Spain auctioned just over 4 billion euros of treasury bills after a well-received bond auction last week and an 8 billion euro debt sale by Italy on Monday.
Many in the market expect Spanish and other lower-rated euro zone bonds to resume their rally once the syndicated sale is out of the way, as investors emboldened by ultra-easy monetary policy from major central banks snap up higher-yielding assets.
"The new bond seems slightly cheaper on the curve but that said the bottom line is sentiment remains very constructive and the order book seems quite decent," said Michael Leister, a strategist at Commerzbank.
"...It presents a better buying opportunity and once that's out of the way this downward trend in yields will continue."
Spanish 10-year yields were last at 4.31 percent, off a high of 4.36 percent reached earlier in the session as Madrid launched the syndicated sale.
Although they have bounced off 2-/1/2 lows of 3.95 percent reached last week, they are still way off peaks of 7.8 percent reached in mid-2012 before European Central Bank President Mario Draghi said he would do whatever it took to save the euro.
Expectations that the ECB will ease policy further after it cut its key rate last week to 0.50 percent are anchoring German 10-year yields near record lows and pushing investors towards riskier assets to maximise returns.
Bunds reversed most of their losses after German analyst and investor sentiment recovered much less than expected in May, pointing to a tepid recovery in the euro zone's largest economy.
The ZEW figures come before preliminary estimates of euro zone gross domestic product on Wednesday which could support bets of more monetary easing from the ECB if the currency bloc remains mired in recession.
The Bund future was flat on the day at 144.88 while 10-year yields were unchanged at 1.36 percent.
"We'll probably rally from here. We're seeing some buying on the dips with all this talk of weak data," a trader said.