ECB rate outlook lifts Bunds, helps demand at Spanish debt sale
* German Bunds rise on dovish Asmussen comments
* ECB outlook supports demand at Spanish sale
* Portuguese, Greek markets get some respite
LONDON, July 9 (Reuters) - Benchmark German government bonds rose on Tuesday after European Central Bank policymaker Joerg Asmussen indicated the bank would keep interest rates low for more than a year.
The ECB outlook also helped secure investor demand at a Spanish sale of 3.5 billion euros worth of 15-year bonds, the longest dated paper it has issued in over two years.
ECB President Mario Draghi said last week rates would be kept at current levels or even lower for an "extended period". Asmussen told Reuters Insider TV on Tuesday the forward guidance on rates extended beyond 12 months.
Bund futures rose 63 ticks to 142.57, while 10-year German yields fell 5 basis points to 1.65 percent.
Bunds further outperformed U.S. Treasuries, which have sold off in recent weeks on prospects of reduced monetary stimulus from the Federal Reserve. The U.S./German 10-year yield spread widened to around one percentage point.
"The euro area recovery is arguably where that of the U.S. was in 2009," said Chris Scicluna, head of economic research at Daiwa Capital Markets. "That kind of noise from Asmussen is what gets people's (attention)."
While the Spanish issue was only half the size of the previous two syndicated deals this year, books of about 7.5 billion euros indicated strong demand.
"One (side of the) market thinks that the market has overshot and the recent selling has gone too far ... particularly in the light of the ECB commitment," Scicluna said.
Spanish 10-year yields rose 6 bps to 4.71 percent. Traders said the selling pressure came from investors who wanted to make room in their books for the new paper and was not a reflection of any disappointment with the sale's results.
Portuguese bonds outperformed their euro zone peers, with 10-year yields falling 27 bps to 6.76 percent after the ruling coalition parties patched up a rift that had threatened Lisbon's plans to return to markets in 2014.
Traders said the rally should be viewed cautiously. The gap between what buyers offered for the bonds and what sellers wanted was about 2 cents in the euro, double what it was before two ministers resigned last week, triggering a bond sell-off.
In Greece, bonds firmed after euro zone finance ministers approved an aid payment that will spare the country from default in August. 1/2ID:nL6N0FE1C3 3/8
Greek 10-year yields were last 11 basis points higher on the day at 11.07 percent, having fallen as low as 10.72 percent before some investors took profits on the rally.
"The agreement is undoubtedly a small positive, things have been a bit hairy," said Gabriel Sterne, economist at distressed debt brokerage Exotix. "Still, the big unknown going forward is whether they're going to get the economic recovery or not."
The Greek yield curve remains inverted in a sign of the stress government financing is under.
Morgan Stanley strategists closed their buy recommendation on Greek bonds and shifted their stance to neutral, citing potential political constraints to Athens meeting its bailout terms against a backdrop of global repricing of risk premiums.
They lowered their estimates for the fair value of Greek bonds by about 3-5 cents in the euro depending on different scenarios. If the bonds escape another restructuring, their average price should be 47.50 cents in the euro.
The average price would rise to 51.25 cents if official lenders took a hit but would fall to 25.25 cents if they imposed further losses on the private sector as well.