* Trading choppy as investors brace for new Spanish syndicate
* Success will be determined by volume, pricing
* Investors stick to sidelines, eye ZEW data
By Ana Nicolaci da Costa
LONDON, Jan 22 Spanish yields rose on Tuesday as investors awaited Spain's first new 10-year benchmark since November 2011, which investors expect will be well-received thanks to improved sentiment for peripheral bonds.
Spain has got off to a flying start to its funding this year as abundant liquidity and the prospect of central bank support underpinned appetite. The 10-year sale would be a strong show of confidence for the country, which only last year came near to needing a sovereign bailout.
"Sentiment is positive for peripheral markets as we saw last week with Italy's 15-year syndicated sale. We can expect it will go fine," Alessandro Giansanti, senior rates strategist at ING said.
Ten-year Spanish yields were up 4 basis points at 5.20 percent.
Spain's Treasury hopes to raise at least 3 billion euros ($4 billion) through the placement of a 10-year syndicated bond, a government source said on Tuesday.
It set the price guidance on the 10-year syndicated bond at midswaps plus 375 basis points, IFR, a Thomson Reuters news and market analysis service said, citing banks managing the deal.
The reaction to the initial guidance was mixed.
The initial indication suggested the bond would be priced at a yield of 5.40 to 5.50 percent, offering a premium over the existing 2022 benchmark's yield of 5.20 percent, analysts said. But the size was on the cautious side, they added.
"Anything below 4 billion (euros), this would most likely be seen as a disappointment after the Italian deal," Michael Leister, senior interest rate strategist, at Commerzbank said.
Last week, Rome sold 6 billion euros of its first 15-year bond in more than two years, bringing the total amount it has raised since the start of the year to nearly 10 percent of its 2013 funding needs.
But the decision to do the sale via syndicate was expected to secure demand, while Spain should still benefit from an environment where the pledge of central bank support had given investors the luxury to seek returns.
"I think people will look at the carry that's there... and, in the current mood, there will be more than enough people out there who will be willing to chase (yields), plus the domestics," Marc Ostwald, strategist at Monument Securities said.
German Bund futures were flat on the day at 142.89. Trade was choppy all morning, with markets broadly lacking a clear direction.
"Basically what we are seeing is very volatile ups and downs with no straight bullish or bearish mood," Charles Berry, trader at Landesbank Baden-Wurttemberg said.
"People are standing on the sideline and my impression is people don't know how to (read) the spread tightening from those non-core countries to Germany - is it a stable situation or is it just a short-lived situation?"
Investors will look to the ZEW investor sentiment index at 1000 GMT for the latest gauge on the health of the euro zone's largest economy, after data last week showed Germany's economy contracted in the fourth quarter.