* Bunds near 2-month highs with investor focus on Greece
* Athens seen getting cash, but no long-term solution
* Start of U.S. budget talks adds to caution
LONDON, Nov 16 German government bonds traded close to two-month highs on Friday, with anxiety over Greece's debt sustainability and the U.S. "fiscal cliff" pushing investors towards the safety of low-risk assets.
Greece has taken centre stage in the three-year-old euro zone crisis as its international lenders squabble over how to make its debt sustainable, delaying a 31 billion euro aid payment necessary to keep the country afloat.
Although Athens is expected ultimately to secure the cash and avoid default this year -- something which has helped push Greek bond yields lower in recent sessions -- analysts and traders say a lasting solution may prove elusive.
Euro zone finance ministers meet again next Tuesday, with IMF Managing Director Christine Lagarde saying a deal should be forged.
Gary Jenkins, director of Swordfish Research, said any deal would be only a short-term fix.
"On Tuesday night we'll know how they're going to kick the can down the road and there will probably be a sense of relief some kind of agreement has been reached and that will probably help Spanish bonds as well," he said.
"In the meantime, the underlying data is probably not going to improve so there's going to be continued pressure on these sovereigns."
The IMF wants a solution that would bring Greek debt down to 120 percent of economic output by 2020 but a senior euro zone source told Reuters this week that finance ministers would only attempt to close the financing gap to 2014.
December Bund futures were 6 ticks lower at 143.07, trading in a tight range but holding close to Tuesday's two-month high of 143.48. Ten-year German yields were down half a basis point at 1.35 percent.
The spread of 10-year Greek bond yields over Bunds was last around 1,600 basis points, its lowest in just over a week, but still around 100 basis points more than a month ago.
"It would be a big shock if they didn't get funding this year as there doesn't seem to be any appetite for trouble ahead of next year's German elections, so we're probably going to see a fudged solution for now," a trader said.
The EU's top economic official sought on Thursday to rule out any write-off of Greece's debt to governments. The IMF argues a write-down is necessary to put the country on a sustainable financial path.
Bunds have rallied since mid-October when it became apparent that Spain was in no hurry to request financial assistance -- something that would allow the European Central Bank to buy its bonds -- as investors booked profits on higher-yielding peripheral bonds and moved back into safe-haven assets.
But the stagnation in the market is evident in the closing levels of Bund futures since last Friday, with three settlements coming at 143.14 and the other two at 143.13 and 143.17.
"Greece, Spain, the U.S., it's the same themes but no developments. People stay risk averse and the market moves sideways," a second trader said.
Spanish 10-year yields have risen around 60 basis points since mid-October and were last a basis point lower at 5.90 percent.
"The (ECB's bond buying) is beginning to look like a bazooka that may never get fired," the first trader said.
"It was one thing to buy the bonds in August or September when you thought the ECB was about to step in but now it's November and it seems further away than ever. You're not necessarily comfortable holding Spain with year-end approaching."
In the United States, budget talks start later on Friday, with fears of a protracted stand-off also whetting investors' appetite for lower-risk assets.