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* Rise seen fleeting as technical picture bearish * German yields seen creeping higher before Wednesday's sale By Ana Nicolaci da Costa LONDON, Jan 14 (Reuters) - Bund futures rose on Monday after testing a key support level on Friday but, given a bearish technical backdrop, analysts expected only a temporary rebound before this week's German auction. Investors will look to euro zone industrial production data later in the day for the latest gauge of the region's economic health, as sluggish data has continued to support demand for safe-haven debt, despite some signs of stability on the region's periphery. German Bund futures were 43 ticks higher at 142.74, having fallen to 142.05 - their lowest in six weeks - on Friday. "Close to 1.60 (percent) on the 10-year Bund, it may tend to see firmer demand because the fundamental context hasn't changed," Patrick Jacq, European rate strategist at BNP Paribas said, adding the contract was consolidating after a sell-off on Thursday and Friday. "It makes sense to see some limited rebound in the Bund. I don't think it is the start of a strong rally." Technical analysts said the contract was rebounding after testing key support levels on Friday but that the technical picture still pointed to further room for declines. "We hit a big support on Friday which was a price gap that we left behind from late October on the March contract as well as a Fibonacci projection support - that's 142.09-141.95 - so we think near-term the momentum has turned a little higher," David Sneddon, technical analyst, at Credit Suisse said. "Our bias though would still be to view strength as corrective for the time being. We still think the broader risk is lower still." Ten-year German yields were down 3.7 basis points at 1.56 percent. Rainer Guntermann, strategist at Commerzbank, said yields could edge higher to 1.70 percent by the middle of the week as investors prepare for an auction of 10-year German bonds. Germany sells 5 billion euros of debt maturing on February 2023 on Wednesday - a sale expected to benefit from a recent rise in yield which makes the returns on the bond more enticing. An auction of new five-year German bonds last week saw healthy demand for that reason. "With the 10-year auction coming up out of Germany, there is a technical argument that yields should jump a bit higher with the new benchmark," Guntermann said. PERIPHERY "NORMALIZATION" Spanish and Italian government bonds came under some selling pressure as market participants took profit after strong rallies on the back of healthy auctions last week. Ten-year Spanish government bond yields were up 9 basis points at 4.98 percent but remained close to a 10-month low hit on Friday. Equivalent Italian yields rose 5.8 basis points to 4.18 percent after falling to their lowest in more than two years in the previous trading session. The Italian Treasury said on Monday it had mandated five banks to sell a new 15-year BTP bond and one trader said this could be adding further supply pressure on lower-rated debt. Both countries' borrowing costs have dropped markedly since European Central Bank President Mario Draghi promised to buy bonds of struggling euro zone sovereigns that ask for help, but analysts say the "normalization" of those markets was precarious because it was more based on expectations than fundamentals. "What we know in the near term is that we are going to have an election in Italy in February and we are still waiting for a Spanish request of some financial support from the euro zone, (making) Spain eligible for the OMT (Outright Monetary Transaction)," Jacq said. "As long as we don't have the outcome of both events, I think the potential now for these countries to outperform further is more limited." After a successful start to Spain's hefty 2013 funding programme, investors will scrutinize an auction on Thursday to see whether it can maintain the momentum of front-loading issuance and avoid a sovereign bailout this year.