* Italian yields fall below 5 pct for first time since March 26
* Upbeat global stock markets take shine off Bund future
* Timing of potential Spanish bailout request remains key
By Ana Nicolaci da Costa
LONDON, Sept 14 (Reuters) - Italian government bond yields fell below five percent on Friday for the first time since late March as a new batch of economic stimulus from the U.S. Federal Reserve added to the brightest week for efforts to quell the euro zone's debt crisis this year.
The Fed said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the jobs market and extended the time-frame in which it would keep interest rates near zero..
The move boosted global equity markets and added to a rally dating back to late July for debt issued by Spain and Italy, the two economies at the heart of current efforts to halt three years of debt crisis.
Relatively positive outcomes to a series of events that could have unsettled markets in the past few days have added to the impact of the European Central Bank's pledge last week to buy unlimited quantities of government bonds if need be.
"There is a risk-on mood across the board at the moment, that (has to do with) the Fed but certainly it still echoes from the ECB," Rainer Guntermann, strategist at Commerzbank said.
Italian yields fell 4.5 basis points to 4.98 percent, below 5 percent for the first time since March 26. Spanish yields were little changed on the day at 5.67 percent but both countries have seen their costs of borrowing over the shorter and longer term come down sharply from levels seen as unsustainable for public finances.
There are still concerns heaving over the horizon. They range from whether Italy and Spain can generate the growth needed to bring down their debt, to the shape of an Italian government after 2013 elections and whether they will agree to any conditions attached to ECB bond-buying.
Analysts say the immediate outlook for debt issued by governments across the currency bloc's struggling southern half would largely depend on signs of Spain's willingness to ask for financial help and thus trigger ECB intervention.
That issue which will be at the top of the agenda at a meeting of euro zone finance ministers later in the day.
The danger is that policymakers in the euro zone's fourth largest economy may be encouraged by the current fall in bond yields to hold off asking for external help. A combination of budget slippage and overspending by regional governments that could leave Spain needing to borrow 30-45 bln euros by the end of this year speaks against that.
"Paradoxically the promise of (intervention) means that the imperative to accept a bailout has been reduced," Richard McGuire, strategist at Rabobank said.
"Not only are funding (cost) pressures off but it knows it will be junked by (ratings agency) Moody's as soon as it does request a bailout," McGuire said.
He and others have pointed to the government at least delaying until after local elections in the region of Galicia, a long time stronghold of Prime Minister Mariano Rajoy's conservative People's Party, on October 21.
GERMAN SLIDE
The rally in riskier assets including European stocks took the shine off Bunds, long used by investors as a safe haven in the crisis but which have struggled with the prospect of ECB intervention.
German Bund futures fell 93 ticks on the day to 139.36, having rallied in the previous session on renewed concerns over Greece's financial prospects.
In after-hour trading, German Bunds fell along with longer-dated Treasury prices after the Fed said it would only purchase mortgage-backed securities rather than the Treasuries as many had expected, but later recovered given the scope of the plan.
Ten-year German bond yields were up around 8 basis points at 1.61 percent. The premium investors require to hold U.S. Treasuries over equivalent German Bunds was also one basis point tighter.
McGuire expected the German bond yield curve to steepen between two- and ten-year tenors, betting that longer-dated yields would rise faster than short-dated ones.
But a trader said any room for a sell-off of Bunds, which have come off record lows reached earlier this year, was limited.
"Growth is a problem around the world and rates aren't going up anywhere, so I don't see why Bunds should sell-off," the trader said.
