* Italian auction seen smooth as investors look for yield
* Talk of Spanish syndicated deal persists
* Bunds edge up but hold near six-week lows
By Marius Zaharia
LONDON, May 13 (Reuters) - Italian yields edged up before a bond sale on Monday, while Bund futures recovered from six-week lows after a European Central Bank policymaker reiterated a deposit rate cut was possible.
Italy will offer up to 8 billion euros of fixed-rate bonds and debt linked to 6-month Euribor (CCTEUs) at its regular mid-month auction. Traders said investors sold Italian bonds early in the session to make room for the new supply.
Appetite for Italian and other high-yielding euro zone debt has been strong this year as ultra-easy central bank policies have depressed benchmark yields and pushed investors towards riskier assets in search for higher returns.
"I believe the auction will go well," said Mathias van der Jeugt, rate strategist at KBC in Brussels.
"The amount on offer is relatively low and can be easily digested. We've seen some marginal cheapening over the past few days ... and investors' hunger for yield isn't over yet."
Italian 10-year yields were 5 basis points higher on the day at 3.95 percent, having hit a 2-1/2 year low of 3.682 percent hit at the beginning of May.
Analysts said speculation Spain could launch a syndicated debt sale could weigh on peripheral bonds, as the market would have to absorb a significant amount of debt after Madrid sold more than planned at an auction last Thursday.
The Spanish government has not commented, but market talk persists after strong syndicated debt sales by Portugal and Slovenia earlier in May.
"It might put some pressure on Spanish bonds in the near term if rumours persist but I don't think it would be a reason to delay it or not to do it," van der Jeugt said.
Spanish 10-year yields were 5 bps higher at 4.26 percent
At the other end of the credit spectrum, German Bund futures were 18 ticks higher on the day at 144.84, after matching Friday's six-week low at 144.43 at the open.
Forecast-beating U.S. jobs figures and German industrial output data last week contributed to a sharp retreat in Bund futures after they hit record highs at 147.20 on May 2.
Comments by ECB governing council member Ignazio Visco that the central bank could cut the deposit rate into negative territory if the economy needed more help eased expectations that better data could prompt the ECB to hold fire.
Traders also said the dollar's rise to 4-1/2 year highs against the yen on Friday has prompted selling of Treasuries and Japanese bonds, with Bunds caught in the downdraft. But the impact on Bunds seemed to be fading.
"We took the lead from Japan (on Friday) and we never really recovered ... but presumably a lot of the long (positions in Bunds) haven been taken out," one trader said.