* Spain Q4, 2013 GDP rise highest since 2008-data
* Data supports bonds before Thursday’s debt sale
* Italian yields tad lower after strong auction
By Emelia Sithole-Matarise
LONDON, Jan 14 (Reuters) - Spanish bonds held steady on Tuesday as data showing the country’s economy grew at its fastest pace since 2008 in the last quarter of 2013 supported underlying demand ahead of debt sales this week.
Economy Minister Luis de Guindos said late on Monday that the Spanish economy probably grew by about 0.3 percent in the fourth quarter of last year. This was the third quarterly expansion in a row and showed the euro zone’s fourth largest economy was recovering more briskly than initially thought in 2014.
A glut of debt sales from Spain and Italy this week have tempered sharp falls in the countries’ debt yields though analysts expect ample bond repayments to be ploughed back into higher-yielding euro zone debt.
Spanish 10-year yields were last unchanged on the day at 3.84 percent as the market paused for breath after the yields hit four-year lows last week. Equivalent Italian yields were also steady at 3.90 percent.
“The (Spanish) growth data ... confirms the signs that we see from other indicators as well that the economy is heading in the right direction,” said Mathias van der Jeugt, a strategist at KBC Securities.
“Obviously it’s clear there will be some kind of correction in (Spanish yields) after we tested the 2009 lows on January and ahead of the upcoming supply but there isn’t a strong reversal yet. Sentiment in general remains very good towards (peripheral euro zone countries).”
Spain aims to raise up to 5.5 billion euros in a debt auction on Thursday after selling an above-target 5.3 billion euros of five- and 15-year bonds last week.
Many in the market expect the sales to go smoothly after Italy sold a hefty 8.2 billion euros of 2016, 2021 and 2028 bond on Monday, with funding costs over three years falling to a euro lifetime low.
“Domestic demand is still quite strong in Spain and we’ve seen it in the last auction last week and we don’t expect this trend to change,” one trader said.
Madrid is hoping to capitalise on improved investor sentiment towards southern European countries to frontload a busy funding programme this year. Spain is planning to sell 133.3 billion euros in medium- and long-term bonds this year, up from 128.4 billion in 2013.
Elsewhere, German yields were unchanged on the day at 1.82 percent, having fallen almost 10 basis points since Friday after a weaker-than-forecast U.S. non-farm payrolls report cast some doubt over the strength of the U.S. economic recovery.