EURO GOVT-Fall in Bunds curbed as yield rise wins back investors
* Bunds slip, data helps risk appetite
* Buyers come back when Bund yield above 1.60 pct - trader
* Spanish impasse limits Bund sell-off
LONDON, Oct 25 (Reuters) - German government bonds slipped on Thursday as a rebound in the British economy spurred demand for riskier assets, but the subsequent rise in Bund yields drew investors back into the market.
The 10-year government bond yield rose as high as 1.625 percent earlier in the day before slipping by late afternoon to 1.58 percent. The Bund future settled at 140.39, down only 8 ticks on the day.
``Bunds have been pretty much trading in a tight range and above 1.60 (percent) is the bottom end of that range. I know there is decent demand for German paper around those levels so it's not a huge surprise to me that we bounced off those levels,'' one trader said.
``Mirroring that is continued uncertainty around what's happening in the periphery with respect to 'Will they or won't they ask for a bailout?','' he said, referring to Spain.
Olympics spending fuelled Britain's strongest quarterly growth in five years and U.S. data showed the number of Americans filing new claims for unemployment benefits fell last week.
But U.S. business investment showed signs of stalling in September, an indication that worries over a possible sharp tightening in the federal budget are already weighing on the economy.
Euro zone bond markets remain at an impasse, however, as they wait to see when Spain asks 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.
Given that Spain has increasingly focused its issuance in that part of the curve, the fact that funding costs over two and five years are more affordable is considered important. Two-year bonds last yielded 3.11 and five-year ones yielded 4.5 percent.
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.
Ten-year yields were 3 basis points higher at 5.62 percent in late trade, having risen around 20 basis points this week.
Padhraic Garvey, ING's head of investment grade strategy 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.''