* Report on Bundesbank adds to concern over Spain bailout * Spanish yields edge up * Moody's Spain ratings review adds to market jitters By Emelia Sithole-Matarise LONDON, Sept 25 (Reuters) - German Bund futures rose on Tuesday on concern over a potential snag in the European Central Bank's bond purchase scheme after a media report said Germany's Bundesbank was asking lawyers to verify its legality. German tabloid Bild, which did not name its sources, said ECB and Bundesbank in-house lawyers were checking what proportions the programme would have to take on and how long it would have to last for it to breach EU treaties. Spanish and Italian yields edged up as the report added to investor nervousness over when the ECB scheme, aimed at lowering the borrowing costs of the euro zone's struggling sovereign issuers, would begin. Investors were already jittery over Spain's apparent reluctance to seek a bailout -- a condition for the ECB bond purchases -- and the uncertainty was likely to underpin safe-haven German Bunds in coming days. "The Bundesbank challenge to the Draghi plan might be giving us a bit of a bid...Anything that could possibly delay the ECB's plans isn't good," a trader said. The Bund future was last 20 ticks up at 140.60 with German 10-year yields down 1.3 basis points on the day at 1.54 percent. Worries the euro zone's strongest economy was no longer immune to the debt crisis, after Monday's fall in the German Ifo business sentiment index to its lowest since early 2010, also supported Bunds. The main focus remained on Spain, which could face a downgrade of its sovereign debt rating to junk status as Moody's Investors Service is expected to complete a review soon. Spanish two-year yields rose 6 bps to 3.16 percent while 10-year yields were up 3 bps at 5.73 percent. Italian counterparts were also slightly higher. Analysts and traders said investors were wary of pushing prices too far either way given uncertainty over when Madrid would request external aid. EU officials said Prime Minister Mariano Rajoy was not expected to do so before a regional election in his native Galicia on Oct. 21. A sharp fall in Spanish debt yields had also eased some of the pressure on Madrid to seek assistance but market impatience and the Moody's review could prompt a move, strategists said. "For now our view is that the pressure is not really high enough on Spain," said Michael Leister, a senior rate strategist at Commerzbank. "This muddling through by politicians can continue because what we can see is the market seems to respect this 'Draghi put' so everybody is reluctant to go short Spain and Italy because you don't want to be caught by a quick activation of the ECB (bond purchases)." Th Draghi put refers to the increased market confidence resulting from the ECB's back-stopping the bond market.

Source