* Bunds dip but further gains seen likely * UK holiday depresses trading * Italian auction looms By Kirsten Donovan LONDON, Aug 27 (Reuters) - German government bonds dipped on Monday with markets in limbo and awaiting details of the European Central Bank's plan to buy the bonds of troubled euro zone countries. In the absence of such details, further short-term gains were seen likely. A market holiday in the UK meant trading volumes were set to be even lower than in recent summer weeks. September Bund futures were 20 ticks lower at 143.80 after rallying to their biggest weekly gains since early July last week. But the contract was up from levels seen in after-hours trading on Friday when Bunds were knocked lower by a Reuters report, citing central bank sources, saying the ECB was considering setting yield band targets under its proposed bond- buying programme. "The odds are we get a disappointment from the ECB so there is upside potential for Bunds," said ING rate strategist Padhraic Garvey. "We're still trading within the established range...and haven't made any break out of crisis territory. It's been a positive few weeks, but from the price action I don't get the impression there's a discount for a magical end to the crisis." To extend gains Bunds will need to break above Friday's 144.13 high -- the 62 percent retracement of the sell-off seen since late July. With many in the market on holiday and investors reluctant to place bets on the direction of markets before September when numerous events have the potential to cause price swings, prices have been volatile in recent weeks. Headlines on what the ECB's proposal to buy bonds of troubled euro zone countries may look like have buffeted asset prices, while risks of a Greek euro zone exit have bubbled back to the surface in recent days. "Given that questions (over Greece's fate...and the delivery of sovereign liquidity support) are likely to be addressed only later, that should result in fairly sideways action in yield levels and spreads," Credit Agricole strategists said in a note. Next month is likely to prove pivotal with the ECB's policy meeting on Sept. 6 followed by the German Constitutional Court's ruling on the euro zone's permanent bailout fund on Sept. 12. Italian 10-year bond yields were 8.2 basis points lower at 5.71 percent but the bonds were expected to come under pressure before debt sales on Tuesday and Thursday as dealers make way for the new issuance on their books. However, cash from an 11.5 billion euro zero-coupon bond redemption on Friday should offer support. Italy will sell up to 3.75 billion euros of zero-coupon and inflation-linked bonds on Tuesday and will announce later on Monday details of a BTP auction on Thursday. German 10-year bond yields were just under a basis point higher at 1.338 percent. "Nothing is trading in the street or client wise," a trader said. "Maybe we'll start to see some dealers positioning for this week's Italian supply later in the day but more likely it happens tomorrow."

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