* Greek yields extend this week's falls
* Media report says EU weighing extending maturity of loans
* Germany sells 3.28 billion euro of 5-year debt
* Expectations of further ECB easing supports demand
By Emelia Sithole-Matarise
LONDON, Feb 5 Greek bond yields fell sharply on Wednesday after a media report said European Union officials were weighing extending the maturity of loans to Athens to 50 years, which could ease the debt burden on Greece.
Citing two officials with knowledge of the discussions, Bloomberg said the next bailout for Greece may include extending the maturity to 50 from 30 years, and cutting the interest rate on some previous aid.
An official close to Greece's debt negotiations with the troika had told Reuters as early as October that Greece may swap a big chunk of its bailout loans with a 50-year government bond as a way to achieve debt relief once it attains a primary budget surplus this year.
Given that a cut of Greece's nominal debt pile is not an option, Greek and European Union officials have repeatedly said that some combination of at least three measures were examined to provide debt relief. These were a further lowering of interest rates on existing loans, an extension of the maturities and pay-back schedule, and some relief on financing EU structural funds.
Greek 10-year yields slid 29 basis points to 8.12 percent with 30-year yields falling 24 bps to 7.82 percent , outpacing other euro zone peers including bonds issued by bailed-out neighbour Portugal.
The yields have dropped around 60 basis points this week, almost reversing their recent rise to 2014 peaks spurred by contagion to the euro zone's most battered debt market from the sell-off in emerging markets.
There has been a string of positive news on Greece, including a Reuters report on Tuesday that Athens and its international lenders had largely resolved differences over a potential fiscal gap this year, removing a hurdle to talks to release more bailout funds.
"Today's news is positive in terms of the Bloomberg report that the EU are considering reducing interest rates on the loans and moving forward with the programme," said Gabriel Sterne, chief economist at distressed debt brokerage Exotix.
"There are a lot of overhanging uncertainties the resolution of which will be of considerable comfort to markets, especially in an environment where the opinion polls are not looking good for the government. It is reasonable that markets are handing on to this sort of news and are very volatile."
Sterne was referring to signs of increasing opposition to austerity measures in Greece, where the ruling coalition has a three-seat majority in parliament. The opposition Syriza party, leading in the polls, has pledged to tear up the bailout deal.
In core euro zone markets, German yields fell back to six-month lows after a sale of five-year bonds drew solid demand fuelled by bets the European Central Bank will signal further monetary policy easing this week.
The sale of 3.28 billion euros of five-year bonds drew bids worth 1.7 times the amount offered and was sold at a lower yield than at a similar auction in January.
Lingering concerns over emerging markets and the ECB policy outlook is supporting demand for German debt, the euro zone's safe-haven of choice, even though yields in the secondary market are at six-month lows.
"Clearly the ECB is in play. A number of people think there will be a refi cut (on Thursday) and we are one of them. Certainly the prevailing consensus is you are going to get more easing in the next couple of months," said RBS strategist Michael Michaelides.
Five-year German yields were 2 basis points lower at 0.53 percent after the auction while the 10-year Bund yield was 3.4 bps down at 1.521 percent.
"Secondly, there are still some flows from emerging markets into safe haven markets (and) the data backdrop is not as strong as the consensus probably believes."
A fall in euro zone inflation to 0.7 percent last month, well below the ECB's target, and volatile money markets are piling pressure on the ECB to do more to pep up the block's weak recovery.
Money market prices suggest no change in ECB rates at its policy meeting on Thursday. The vast majority of 24 traders polled by Reuters said they did not expect the ECB to take its refinancing rate lower than the current 0.25 percent on Thursday or make any moves that could increase money supply and boost inflation. ECB/REFI