* ECB buys Spanish,Italian bonds-traders
* Bunds volatile on recession worries
* Investors eye U.S. Fed meeting
By Ana Nicolaci da Costa
LONDON, Aug 9 Italian and Spanish bond yields
fell for a second day on Tuesday as the European Central Bank
was seen stepping in again to scoop up those bonds, with
analysts urging the bank to keep up its purchases or even do
more to keep yields at sustainable levels.
Yields on both sovereigns headed down towards 5 percent,
supported by the ECB bond buying which began on Monday after a
spike in yields last week triggered concern the euro zone's
third and fourth largest economies would soon be shut out of
Market estimates of the scale of ECB buying over the past
two days varied with conservative estimates as low as 3.5
billion euros, while some said as much as 9 billion had been
purchased. Traders said buying had been focused in the five- to
"The ECB will try to guarantee that the market for Italian
and Spanish bonds is somehow under control until the EFSF (euro
zone rescue fund) is operational," said Kornelius Purps, fixed
income strategist at UniCredit.
"But the ECB might have to put more money on the table."
Fund managers estimated the ECB would need to buy at least
100 billion euros ($142 billion) of Spanish and Italian bonds to
shore up the stricken euro zone and calm the markets, a Reuters
Ten-year Italian bond yields fell 14.2 basis
points to 5.19 percent and the Spanish equivalent
shed 12 basis points to 5.09 percent, off euro-era highs hit
last week above 6 percent.
"We have seen enquiries and we have dealt with them (central
banks)," one trader said. Another said that buying was focused
more heavily on Italian paper than Spanish.
Analysts said the ECB had to be consistent with its bond
buying to keep yields from rising again.
"It still remains to be seen how credible the ECB is this
time round and how sustained they are in terms of their
purchases, and we wouldn't exclude for the whole thing to turn
around again," said WestLB rate strategist Michael Leister.
Ten-year French bonds were under pressure with yields
rising 9.4 percent to 3.24 percent even after
reassuring comments from Standard & Poor's.
S&P does not expect to downgrade its AAA rating on France
within the next two years, the head of the credit agency's
European sovereign ratings unit told a German newspaper on
"At the end of the day Italy and Spain are out of the game
so we'll be looking at Belgium and France next -- the ones
without protection," a third trader said.
Attention turned to a U.S. Federal Reserve monetary policy
meeting on Tuesday, with investors hoping the U.S. central bank
will say something to calm financial markets, after stocks took
a thumping in recent sessions.
"They can't just ignore equity moves like this, they will
try and be as upbeat on growth as they can ... but I don't think
you're really going to see much beyond the 'lower-for-longer'
(rates) emphasis," said Lloyds Bank strategist Charles Diebel.
On Tuesday, world stocks picked up after a 10-day rout,
taking the shine off safe-haven German bonds, but are likely to
remain volatile. .
The German Bund future FGBLc1 settled at 132.41, down 67
ticks on the day.
(Editing by Susan Fenton)