Bund yields touch three-week highs on Fed tapering speculation
* Bunds flat, but 10-year yields briefly hit 3-week high
* Fed tapering speculation keeps upward pressure on yields
* Italy, Germany sell government bonds
LONDON, Nov 13 (Reuters) - German Bund yields briefly hit three-week highs on Wednesday, but held in narrow ranges as uncertainty over when the U.S. Federal Reserve would start trimming its stimulus programme kept investors nervous.
Speculation the Fed could move in January or even December has resurfaced after surprisingly strong U.S. October payroll data on Friday. Prior to that, most in markets had expected the Fed to hold off until March.
On Tuesday, two Fed officials said aggressive monetary policy was still needed, but the market reaction was muted with a crucial hearing for Fed chair-in-waiting Janet Yellen and European third-quarter growth data both due on Thursday.
German 10-year Bund yields fell 0.5 basis points to 1.778 percent, having earlier hit a new three-week high of 1.796 percent.
Bund futures rose 13 ticks to 140.83, still close to Tuesday's three-week lows of 140.53.
A price dip after the Bank of England brought forward its expectation for when British unemployment could hit 7 percent - the level at which it would consider raising interest rates - was short-lived.
"We're in a wait-and-see stance looking at the GDP data tomorrow ... and Yellen," said Christian Lenk, a strategist at DZ Bank in Frankfurt.
"Markets are looking for some kind of (signal) ... to see if she is a dove or not... But I think she will try to calm everybody down that there will be no tapering any time soon."
With a European Central Bank rate cut and speculation about further easing sheltering short-dated paper from the uncertainty surrounding the Fed outlook, a sale of new two-year German bonds went smoothly.
Italy also sold 5.5 billion euros of three-, five- and 30-year bonds, with the yield for the short-term paper hitting the lowest since March 2010.
With Italy's 2013 funding plan almost completed, its bonds are likely to perform well in coming weeks, analysts said. On Wednesday, Italian 10-year yields were 1 bp higher at 4.16 percent.
Bonds from bailed-out Greece and Portugal stabilised after selling off on Tuesday on a proposal from German parties to hold nationwide referendums on major European decisions, such as committing aid money.
Traders said investors sold Greek and Portuguese paper after the news only to book some profits on the recent rally. They did not expect the selloff to continue.
"This is just talk as the government (in Germany)is taking shape," said Jan von Gerich, fixed income chief strategist at Nordea in Helsinki.