EURO GOVT-Bunds pulled lower by gilts as UK GDP rebounds
* Bunds slip, pulled down by gilts
* Move above 140.65 needed for rally to resume
* Spanish impasse limits moves
LONDON, Oct 25 (Reuters) - German government bonds slipped on Thursday, pulled down by falls in UK gilts after data showed Britain rebounded strongly from recession in the third quarter.
Ten-year gilt yields were around 8 basis points higher on the day, dragging Bunds and Treasuries in their wake after the UK posted its strongest GDP growth in five years .
``Markets were positioned for an upwards surprise but even so, this was much more than expected,'' said Nick Stamenkovic, rate strategist at RIA Capital Markets.
``But the key support level for Bunds is 1.70 percent and we'd have to see some significant improvement in the U.S. data today and tomorrow for that to be taken out.''
Euro zone bond markets were still mostly at an impasse however as they waited for a signal on when Spain may ask for financial aid - an essential step if the European Central Bank is to buy its bonds.
Although Spanish bond yields have fallen sharply since late July and ministers insist the country can finance itself, Madrid is widely seen as having little choice but to ultimately seek help, and markets are impatient for clarity.
Few expected Spain to ask for a rescue before last weekend's local elections in Galicia - Prime Minister Mariano Rajoy's home region - but the government also faces elections at the end of November in economically-important Catalonia, while shorter-dated funding costs have fallen to affordable levels.
The head of the Spanish Treasury said on Wednesday that Spain was ready to start funding itself for 2013, having nearly completed its planned debt issuance for 2012.
Spanish bonds were broadly steady although 10-year yields were 3 basis points lower at 5.56 percent, having risen around 20 basis points this week.
``The market is (pricing) that if Spain has a problem there is a route out for them and that's a good thing,'' said Padhraic Garvey, ING's head of investment grade strategy.
He suggested selling Spanish bonds because so many market players had bought them in recent weeks.
``I don't think we'll get much more money in that trade so looking at the risk/reward they begin to sell off from here ... but it's very difficult to trade because it's a very artificial market and if it does begin to sell off, that could very quickly be reversed.''
December Bund futures were 35 ticks lower at 140.12, having failed to hold above technical resistance levels in the 140.60 area on Wednesday.
``Bunds haven't seen that much in terms of information and data so it's trading very technically in a very tight range and futures are currently testing the 140.00 level,'' a trader said.
``But they're really being buffeted by gilts and Treasuries this morning.''
Benchmark 10-year German Bund yields were 3.5 basis points higher at 1.60 percent.
Gloomy economic data on Wednesday, including the euro zone's purchasing managers' index falling to its lowest since June 2009 in October, underscored economic fragility in the region and offered some support to safe-haven Bunds.
However, technical analyst Clive Lambert at FuturesTechs said that unless Bund futures rise above 140.63, corresponding to a gap left on the price chart by a sharply lower open last Wednesday, the market could target last week's low at 139.45.