* Bund slide on ECB comments, thin trade speeds selloff
* Bernanke speech provides focus in search for new QE signal
* ECB meeting more significant for euro zone sentiment
By William James and Kirsten Donovan
LONDON, Aug 31 (Reuters) - German government bonds fell on
Friday as some investors took fresh bets on expectations the
European Central Bank will next week announce a clear plan for
buying bonds, looking beyond a keynote speech by the head of the
Federal Reserve.
But given uncertainty surrounding possible policy shifts by
both central banks, many market players stuck to the sidelines
and trading was thin.
In a speech on Friday afternoon, Fed Chairman Ben Bernanke
is expected to acknowledge the U.S. central bank is considering
further monetary easing, but could disappoint some if he stops
short of signalling a third round of bond-buying is imminent.
But the reaction in Europe is expected to be short-lived,
with many investors waiting on details of a radical European
Central Bank plan to buy bonds which is to be fleshed out during
a policy meeting next Thursday.
"For Bunds, Bernanke is an important staging post but it is
the ECB meeting which is paramount," said Rabobank rate
strategist Richard McGuire.
Confirming that view, September Bund futures fell
nearly a full point to 143.17 with traders pointing to comments
from the European Central Bank's Benoit Coeure, confirming that
the bank is working on a bond-buying plan.
"It's more noise, but it's the end of the week, the end of
the month and if you were long, at the margin that maybe enough
to take some profits," a bond trader said, referring to Coeure's
comments.
Bunds were last down 80 ticks on the day at 143.35.
German debt was likely to track U.S. Treasuries following
the Bernanke speech, but opinions were mixed on the direction of
the move if his words fell short of expectations.
Anything short of a commitment to new quantitative easing
could see bonds rise as a result of a fall in stock markets, but
equally the disappointment of the Treasury not committing to
purchases could weigh on bond prices.
As a result, the likely outcome was a knee-jerk move that
had some spillover into European markets but quickly unwound
heading into the weekend.
"People (in Europe) will be at their desks for this, they've
waited long enough to hear it, but if it turns out to be a bit
of a letdown they'll be clearing the streets pretty soon," a
second trader said.
ECB FOCUS
The long-term direction of euro zone sentiment was likely to
be dictated by whether the ECB provides enough details of its
bond-buying plans to justify the rally in peripheral debt seen
since the plan was first mooted.
The prospect of ECB intervention has helped lower borrowing
costs since late July for the plan's likely beneficiaries Spain
and Italy.
Although well below their highest levels, Spanish 10-year
government bond yields were 11 basis points higher
at 6.73 percent on Friday, with equivalent Italian yield
up 1 bps at 5.82 percent.
Year-to-date returns highlight the disparity between the two
issuers, with concerns about Spain - which is expected to ask
for a bailout - much higher than those of Italy.
By the end of August, Italian bonds had returned 10.6
percent on a total return basis, according to the iBoxx
index, while Spanish bonds had lost 3 percent.
