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By Emelia Sithole-Matarise and Marius Zaharia
LONDON, Jan 28 (Reuters) - Greek government bond yields fell on Tuesday as a sell-of in riskier assets paused, but they remained near 2014 highs with Greece seen as the euro zone member most at risk from emerging market turbulence.
The rout in emerging markets that hit Greek bonds in recent days eased after the central bank in Turkey, whose lira currency has been hit hard by the turmoil, called an emergency meeting. The bank is expected to raise interest rates.
Investors remained edgy. Many are reluctant to increase exposure to high-yielding bonds on lingering concerns that a cut in the U.S. Federal Reserve's bond-buying stimulus programme at a policy meeting this week could rekindle the sell-off in emerging markets.
Yields on junk-rated 10-year Greek bonds were last 8 basis points down at 8.67 percent, having risen as high as 8.90 percent on Monday. Portuguese equivalents were 7 bps lower at 5.14 percent.
"There have been worries the emerging market crisis could affect global growth and it makes it tougher for these countries (Greece and Portugal) to adjust," said Alan McQuaid, chief economist at Merrion Stockbrokers.
"Greece is the most vulnerable country in the area ... But maybe the sell-off and the worries about the contagion effect from emerging markets was a bit overdone."
The tentative recovery in higher-yielding assets helped Italian and Spanish yields fall, supported by hefty coupon and debt repayments due from both countries this week expected to be reinvested in the bonds.
Italian sales of two-year zero-coupon paper and an inflation-linked bond met strong demand. Analysts said 14.5 billion euros of Italian zero-coupon bonds maturing this week and 8.5 billion euros in coupon payments were likely to have fed reinvestment flows.
Rome comes back to the primary market on Thursday with a sale of 8.5 billion euros in longer-term debt on Thursday, including a new five-year bond.
Italian 10-year yields were last down 5 bps at 3.85 percent while Spanish equivalents were down 6 bps at 3.70 percent.
"Underlying fundamentals are supportive for peripherals. Italy and Spain continue to be beneficiaries of the search for yield," said Christopher Yoshida, head of European rates sales at Morgan Stanley.
Among higher-rated euro zone bonds, German Bund futures shed 6 ticks on the day to 142.49. Cash 10-year yields edged up to 1.68 percent .
Some see German yields grinding higher on expectations that the Fed could this week reduce its monthly bond buying by a further $10 billion despite the latest turmoil in emerging markets. It announces its policy decision on Wednesday.
"We see good reason for the Fed to stand by its pace of 'tapering'. The recent deterioration in emerging markets will not prompt the Fed to alter its policy, in our view," BNP Paribas strategists said in a note.