* Weak German, French PMI data pushes Bunds out of range
* Italian yields edge up before election, investors cautious
* Spain to sell 4 bln of bonds, to benefit from Italy risks
By William James
LONDON, Feb 21 German Bund futures hit a four-week high on Thursday after euro zone private sector activity data came in weaker than expected, prompting investors to flock towards low-risk assets.
Prospects of euro zone emerging from recession soon were dealt a blow as surveys showed the downturn in the region's businesses worsened unexpectedly this month -- especially in France.
Bund futures rose 91 ticks to 143.33, building on early gains made when equity markets in Europe fell on signs the U.S. Federal Reserve's appetite for bond-buying stimulus may be waning.
With traders citing automated buying at the Feb. 11 high of 143.11 after the PMI data, the Bund future breached the top of its recent trading range and hit its highest since Jan. 25.
Analysts said the cautious tone underlying markets in the run-up to Italy's Feb. 24-25 election had made investors more sensitive to weak data.
"Taking into account the recent momentum that has been building up, the market is more prepared to look at the downside, in the PMI data especially," said Christian Lenk, strategist at DZ Bank.
"Investors are becoming more and more cautious ahead of the weekend... and all together people decided here to pull the trigger and go risk-off."
The risk of the Italian vote producing a fragmented parliament with limited ability to pursue reforms has been balanced by the market's belief that the European Central Bank remains an effective buyer of last resort.
That has calmed nerves, ensuring any selling by investors in worried about the election outcome has been met by buyers who have faith in the central bank backstop.
Italian 10-year yields were 4.5 basis points higher on the day at 4.47 percent, but still well below peaks of 4.64 percent seen earlier this month and far the 6 percent barrier, breached last year, that prompted the ECB to make its bond buying commitment.
Later in the day, Spain sells up to 4 billion euros of debt, split across bonds maturing in 2015, 2019 and 2023. The sale is expected to cash in on solid appetite for higher-yielding peripheral bonds and comes a day after the country issued its first dollar bond since 2009.
"With Italy's political risks still prevalent, we suspect there will be some demand to switch into Spanish paper on a tactical basis," said Credit Agricole strategist Peter Chatwell in a note to clients.
Spanish bond yields have pulled back somewhat after rising in early February when a political scandal brought calls for Prime Minister Mariano Rajoy to resign. Since then, Spain has outperformed Italy, narrowing the spread between their 10-year bond yields by 18 bps.
Ten-year Spanish yields were slightly higher on the day, up 4 basis points at 5.24 percent, with traders citing the normal concession-building process, where dealers sell before an auction to make room for the new paper.
France will also sell up to 10.5 billion euros of nominal and inflation-linked bonds.