* Spain planning 50-year bond - financial daily Expansion
* ECB outlook, waning Portuguese concerns support periphery
* Lingering Ukraine concern pin Bund yields near record low (Recasts with potential Spanish 50-year debt sale, updates prices)
By Emelia Sithole-Matarise
LONDON, July 21 (Reuters) - Spanish yields headed towards record lows on Monday as investors digested news it could sell a 50-year bond that could help the country extend the maturity of its debt.
Spanish financial daily Expansion quoted Inigo Fernandez de Mesa, the head of treasury, as saying that he could not rule out issuing a 50-year bond, suggesting the market was ripe for what would be the country's longest-ever bond.
Spain and Italy have met more than 70 percent of their funding needs for this year, taking advantage of record low borrowing costs to frontload bond sales.
"It makes sense for issuers to lengthen their maturity profile with low interest rates," Citi's global head of rates strategy, Alessandro Tentori, said.
"If they (Spain) have a buyer for a specific size they will make a private placement but I don't know that there's infinite demand for 50-year Spain at the moment."
Spanish 10-year yields fell as much as 8 basis points to 2.55 percent, within a whisker of a record low of 2.548 percent hit last month. Italian 10-year yields were 4 bps down at 7.77 percent while Portuguese equivalents were 3 bps lower at 3.67 percent.
Waning concerns about the exposure of Banco Espirito Santo, Portugal's biggest listed bank, to problems related to companies owned by its founding family and scant scheduled debt sales this week supported sentiment in peripheral euro zone bonds.
Hefty redemptions and coupon payments later in the month and about 1 trillion euros in cheap loans to banks from the European Central Bank due from September tempered a sell-off in peripheral bonds prompted by the downing of a Malaysian jet in Ukraine jolted financial markets.
The bond market was calmer on Monday with some investors hoping the coming days might bring a diplomatic solution to the Ukraine crisis after the plane crash, blamed by Western countries on pro-Russia rebels.
The incident has intensified tensions between the West and Russia, which flared after Russia annexed Crimea.
Some in the market see the plane disaster triggering a diplomatic solution to the worst crisis between Russia and the West since the Cold War though the lack of concrete positive developments kept price moves modest.
"Investors don't seem as worried as they were last Friday," DZ Bank strategist, Christian Lenk, said. "There are simply some hopes now implicitly that maybe we have seen a culmination of that conflict and may see some easing in the near future."
German 10-year yields, the benchmark for euro zone borrowing costs, were flat on the day at 1.16 percent, within sight of an all-time low of 1.126 percent hit at the height of the debt crisis in mid-2012.
"In the absence of more bad news, core yields could creep a bit higher today, but in general the upside still looks limited in the near term, as risks remain the geopolitical tensions will only increase and the cash flow picture remains rather supportive," Nordea strategists said in a note. (Editing by Louise Ireland)