* Portugal/German bond yield spread widest in 5 weeks
* Italy, Portugal yields set to end week up 8-12 bps
* Yellen, Draghi to speak at Jackson Hole
* Focus returns to Italy political risks, ECB tapering
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Aug 25 (Reuters) - Portugal's 10-year bond yield rose to its highest level in almost a month on Friday and was set for its biggest weekly jump since January as renewed focus on the ECB policy outlook weakened sentiment towards lower-rated euro zone debt markets.
A sell-off in southern European bonds that began with Italy earlier this week spread to Portugal, where the premium investors demand for holding 10-year bonds over German peers rose to its highest level in five weeks.
Analysts said renewed uncertainty about the European Central Bank policy outlook has dimmed the appeal of southern European bonds, a key beneficiary of ECB stimulus.
Those jitters have encouraged investors to unwind carry trades - borrowing in low-yielding assets to invest in higher-yielding ones such as peripheral government bonds.
European Central Bank chief Mario Draghi and U.S. Federal Reserve Chair Janet Yellen speak at a gathering of central bankers in Jackson Hole, Wyoming, later in the day.
Draghi speaks after the close of European markets and is not expected to deliver a new policy message. Still, his speech is in focus amid growing talk that the ECB is likely to signal a scaling back of its monetary stimulus in September or October.
The last time Draghi spoke at Jackson Hole in 2014, he laid the foundations for the ECB's unprecedented monetary stimulus.
"With the summer lull coming to end and central banks returning, markets are thinking about the future course of ECB action," said DZ Bank rates strategist Rene Albrecht.
"So investors are taking a more a defensive stance on countries such as Italy, Spain and Portugal and that has accelerated this week."
Portugal's 10-year bond yield rose was up almost 3 basis points to 2.89 percent, its highest in almost a month. It was set for its biggest weekly rise since January, with a jump of just over 12 basis points.
That has pushed the gap over top-rated German bond yields to around 250 bps -- the widest in five weeks. The spread is often viewed as a gauge of how investors view relative risks in the euro zone.
In Italy, the 10-year bond yield gap over German peers this week widened to around 176 bps, the highest since mid-July.
Italian bond yields, trading at 2.11 percent, were set for their biggest weekly jump in seven weeks.
Political risks in Italy as an election approaches in 2018 were thrown back in the spotlight after former prime minister Silvio Berlusconi refloated the idea of a parallel currency at the weekend.
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(Reporting by Dhara Ranasinghe Editing by Jeremy Gaunt)