* German debt prices fall as market welcomes Spanish auction * Spain sells 4.5 bln euros, Portugal readies market return * Ample central bank liquidity drives greater risk-taking By William James and Ana Nicolaci da Costa LONDON, Jan 17 (Reuters) - German debt prices tumbled on Thursday, unwinding a three-day rally, as a successful Spanish bond sale buoyed confidence towards the euro zone's struggling states and cooled appetite for safe havens. Spain hit the top end of its 4.5 billion euro target range at a sale of short- and long-term bonds, which took its fundraising for the year to nearly 9 percent of its target. That, coupled with a landmark 15-year bond sale by Italy on Tuesday and signs that Portugal would join fellow bailout recipient Ireland by returning to bond markets this year, cut demand for the safety of German debt. "It's all periphery-positive and suggests that there's scope for the risk premium that Bunds have to unwind further," said Chris Scicluna, head of research at Daiwa Capital Markets. The German Bund future fell to a session low of 142.56, within half a point of the seven-week lows reached late last week, and wiping out most of the gains made earlier this week when the market mood was more cautious. However, as has been the case in recent days, buyers still keen to hold German debt emerged to take advantage of the dip in prices, leaving the contract to settle at 142.76, down 61 ticks. While the Spanish auction went smoothly, yields rose in the secondary market after the sale suggesting that the supply had found buyers, but that appetite at current levels was not limitless given the challenges the country still faces. Spanish 10-year yields were up 5 basis points on the day at 5.11 percent, some 25 basis points from the lows seen just after its previous debt sale on January 10. Spain has benefited from the European Central Bank's promise to buy the debt of any state that undertakes a bailout programme, but still faces a battle to generate economic growth and bring its deficit under control. AMPLE LIQUIDITY France also saw firm demand at a short- and medium-term debt sale as the country continued to benefit from investors looking for higher returns that those on safe-haven German debt. French yields rose in the secondary market after the auction as the market absorbed the supply, also tracking a broader sell-off in safer debt. Ten-year yields were were 6 basis points higher at 2.19 percent. Appetite has been strong for both the least risky and lower-rated bonds at auctions this year - a phenomenon ascribed to ample liquidity as investors allocate funds at the start of the year, an overhang from major central banks' ultra-loose monetary policies. To play on this trend while not taking on the greater risk attached to peripheral bonds, Rabobank recommends buying Belgian debt and selling Dutch, according to Elwin de Groot, a senior market economist at the bank. "It's not a long-term position but it's more the idea that in the near term there is such a huge amount of liquidity," he added. Ten-year Belgian bonds yielded 2.28 percent, compared to 1.75 percent on the equivalent Dutch bond .