* German Bunds fall before five-year auction * Demand seen at the five-year bond sale, despite returns * Investors brace for ECB meeting, risk of disappointment By Ana Nicolaci da Costa LONDON, Aug 1 (Reuters) - German Bund futures fell on Wednesday as investors took profit on more than a point of gains in the previous session before an auction of five-year debt that is expected to attract demand despite low returns. Investors were likely to snap up 4 billion euros of safe-haven paper amid uncertainty over whether European Central Bank President Mario Draghi is capable of delivering on Thursday on his pledge to do whatever it takes to protect the euro. The comments, made last week, generated high expectations that at the very least the ECB would resume its bond-buying programme but Germany's continued resistance to giving the euro zone's future ESM rescue fund a banking licence has dampened hopes for a bold policy response. Analysts said the market was consolidating after a rally that was partly driven by month-end buying in the previous session. "After the rally yesterday, the fall in Bunds is not surprising. I think the market had just rallied too much given that there is still a chance that the ECB might announce something tomorrow," Cagdas Aksu, European rates strategist at Barclays said. He expected healthy demand at the German auction. "The bond looks fair value to cheap on the German curve and there is generally bid for the German paper. I think it should be smooth." German Bund futures fell 72 ticks to 143.86, pushing 10-year government bond yields 5.3 basis points higher to 1.34 percent. Five-year bond yields rose 3.4 bps to 0.34 percent. Despite the low returns, Alexander Aldinger, rate analyst at Commerzbank said the five-year bond sale could also benefit from demand from people seeking a pick-up in relation to negative-yielding two-year bonds. Ten-year Spanish government bond yields were down 5.5 basis points at 6.72 percent, while their Italian equivalent fell 10 bps to 5.99 percent. "Italy widened a bit yesterday and it's just taking back some of that widening but there isn't much volume behind the moves. Markets in general are in a risk-on mode before the ECB. A lot of the expectation is already priced in," a trader said. GREAT EXPECTATIONS The U.S. Federal Reserve is likely to show later on Wednesday that it is ready to act against a weakening U.S. economy but stop short of aggressive measures for now. Expectations for action from the ECB - which concludes its own meeting on Thursday - have been higher on the back of Draghi's bold comments. Even though markets have scaled them back somewhat, analysts said a lack action could see Bunds rally and Spanish yields retest euro-era highs made last month. A second trader said he wasn't taking any chances, and that he was staying long on Bunds. There was decent support at 143.70 and he could add to his long position if the Bund got to that level, he said. "Given that he laid down the ground-work... if he doesn't (take action) then the market is going to take it really badly," the trader said. "Even if he does say something... and we get a sell-off in the Bund, people might use it as an opportunity to get long again." ING was also bracing for a disappointing ECB meeting on Thursday: "The 5s10s curve has recently re-steepened to 98 bp from 85bp in May," it said. "It has been correlated with the sell-off in the 10yr German yield. We suggest taking advantage of the movement and entering in a 5s10s flattening as a hedge for a disappointing ECB meeting on Thursday."

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