May 5 (Reuters) - Bund futures opened lower on Thursday ahead of a rate-setting meeting of the European Central Bank that could signal interest rates would rise again in June or July. Investors widely expect the ECB to leave interest rates unchanged at 1.25 percent this week, but will closely watch for whether President Jean-Claude Trichet uses the code words "strong vigilance" in his news conference. [ID:nLDE7420ZV] This language would be interpreted as a sign interest rates would rise in June rather than July, which could add to flattening pressure on the Bund curve. "The market is pricing a 50/50 probability for a June rate hike so ... 2 percent for the Schatz yield could be tested today if he (Trichet) uses the words 'strong vigilance'," said Cristoph Rieger, rate strategist at Commerzbank. At 0607 GMT, the Bund future FGBLc1 was 18 ticks lower at 122.30. The two-year Schatz yield was 2 basis points up on the day at 1.934 percent, while the benchmark ten-year yield was up 0.8 bps at 3.307 percent. Later in the day, a Spanish auction of five-year bonds was expected to find decent demand as sentiment towards euro zone's lower rated sovereigns improved slightly after Portugal agreed a three-year, 78 billion euros bailout deal with the European Union and the International Monetary Fund. "The relative value on the curve and the improved peripheral sentiment should serve to see the auction covered solidly," Credit Agricole strategists said in a note. France also issues 8-9.5 billion euros worth of bonds, with maturities of up to 21 years. (Reporting by Marius Zaharia; Editing by Toby Chopra)

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