EURO GOVT-Downbeat data helps Bunds, and demand at auction

* Bunds rise after downbeat Ifo, euro zone PMIs

* Germany sells 3.3 bln euros of 10-yr bonds, demand good

* Questions over timing of Spanish bailout persist

LONDON, Oct 24 (Reuters) - German government bonds crept higher on Wednesday as data showed the economic downturn in the euro zone appeared to be deepening, underpinning demand at a 10-year Bund auction. Businesses in the region suffered their worst month in October since the bloc emerged from its last recession more than three years ago, surveys showed, while Germany's Ifo economic research institute said the country's business climate worsened in October. The data reinforced a favourable backdrop to Germany's sale of 3.3 billion euros of 10-year debt, after Moody's downgrade to the ratings of five Spanish regions earlier this week fuelled appetite for safe-haven assets. ``The spike in (German 10-year) yields last week back towards the 1.60-1.65 percent level ... and the recent Spanish headlines definitely helped the auction,'' said Michael Leister, senior interest rate strategist at Commerzbank in London. Wednesday's auction received bids worth 1.5 times the amount allotted to investors, compared with a 1.37 average bid/cover ratio at previous sales of 10-year bonds this year. . German Bund futures saw a settlement close of 140.47, up 12 ticks on the day, having earlier fallen into negative territory. Mixed messages on Greece contributed to the choppy trading. Greece's finance minister said on Wednesday that his country had been given additional time by its international lenders to impose its austerity cuts but the assertion was played down by leading EU officials.

SPAIN Ten-year Spanish yields fell 5.1 basis points to 5.59 percent. They have risen about 20 basis points this week as Moody's cut the credit ratings of five Spanish regions, highlighting the ongoing problems facing the euro zone's fourth largest economy. Promises of European Central Bank intervention if Spain asks for a bailout have made it difficult for investors to put on selling positions on the Spanish debt market. But some analysts say the market may start testing Spain's and the ECB's resolve if the stalemate continues. ``Now the Galician elections are out of the way, it's possible the markets may react to the ongoing uncertainty as to when Spain may ask for a bailout,'' said Rabobank rate strategist Richard McGuire. ``The path of least resistance then may be for higher Spanish yields and risk-off to remain in the ascendancy.'' Spanish Prime Minister Mariano Rajoy had not been expected to ask for aid before the elections in his home region last weekend, which his party won. But the government also faces regional elections at the end of November in economically-important Catalonia. Faced with that, and more affordable funding costs on shorter-dated bonds, Gianluca Ziglio, strategist at UBS, said it may still take time before Spain seeks help. ``There is a strong incentive for Spain to continue to delay,'' Ziglio said. But he added: ``Next year they can't really delay too much.'' Two-year Spanish bonds were last yielding 3.03 percent and five-year bonds 4.43 percent.