* Fitch upgrades Spain by one notch to 'A-'
* Spain/German 10-yr yield gap tightest since 2015
* Muted bond market impact to US shutdown
* Thursday's ECB meeting awaited
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Jan 22 (Reuters) - Spain's borrowing costs fell to six-week lows on Monday, pushing the gap over the benchmark German peers to the tightest in almost three years, after Fitch Ratings gave Spain its first "A" rating since the euro zone debt crisis.
Fitch upgraded Spain's credit rating to "A-" with a stable outlook late on Friday, citing a strong, broad-based economic recovery and limited impact on the economy from Catalonia's independence bid.
While most euro zone bond yields were little changed in early Monday trade, showing little immediate reaction to a U.S. government shutdown, Spanish bond yields extended declines seen on Friday in anticipation of a ratings upgrade.
Spain's 10-year bond yield fell as much as 5 basis points to 1.39 percent, the lowest level in six weeks.
The premium investors demand for holding Spanish bonds over top-rated German government debt fell to around 89 bps, its lowest since March 2015.
"Clearly there is a reaction to this ratings upgrade although it was expected by some market participants," said DZ Bank rates strategist Sebastian Fellechner. "We think Spain could take the opportunity this week to issue a new 10-year benchmark."
The effect spilled over to other peripheral bond markets, with Portuguese and Italian bond yield 1 to 2 bps lower on the day.
Sentiment towards peripheral bonds was also supported by hopes for a deal to create a coalition government in Germany, the euro zone's biggest economy.
German Chancellor Angela Merkel's conservatives are preparing for formal coalition talks on Monday, wasting no time after the Social Democrats voted to go ahead with the talks following months of political deadlock.
However, most other euro zone bond yields were flat to a touch higher on the day. Investors appeared to shrug off a shutdown in the U.S. government.
Republican and Democratic leaders of the U.S. Senate held talks on Sunday seeking to break the impasse that has kept the U.S. government shut down for two days.
With the European Central Bank meeting this Thursday, analysts said investors were probably moving to the sidelines.
While the ECB is not expected to disclose any major policy changes, it is under scrutiny for any signs that it is moving towards ending its stimulus scheme.
Elsewhere, S&P Global Ratings on Friday raised Greece's credit ratings to "B" from "B-", citing improvements in the finances and fiscal outlook for the debt-laden nation . (Reporting by Dhara Ranasinghe; Editing by TLarry King)