* Spain rallies and Bunds fall, bailout uncertainty persists * Market positioning light heading into U.S. payrolls data * Impatience over possible Spain bailout delay set to grow By William James LONDON, Oct 5 (Reuters) - Spanish bonds rallied and German debt fell on Friday, though both remained bogged down by question marks over Madrid's readiness to seek a bailout. While investors waited for fresh signals from Spain, the day's focus fell on U.S. labour market data, a key influence on Federal Reserve policy. The non-farm payrolls report was due at 1230 GMT and forecast to show the creation of 113,000 jobs in September. But market participants said the data was unlikely to have more than a fleeting impact on euro zone markets, with the U.S. central bank already committed to loose monetary policy and investment strategies centering more on events closer to home. "I'm not sure ...there will be a strong reaction," said BNP Paribas strategist Patrick Jacq. "There will be a reaction but unless it is a zero or 300 (thousand) print it will be a temporary one. Even if it's 150 instead of 110, that's just 0.01 percent of the pool of workers - it's almost nothing." Bund futures slipped 36 ticks to 141.31. The contract has been contained by the Sept. 28 high of 141.95 and Oct. 2 low of 141.10 in recent sessions, and was considered unlikely to break that range without new developments in Spain. Spanish bond yields fell 14 basis points to 5.78 percent on 10-year debt, and two-year bonds dropped to 3.32 percent, down 6 bps. The fall unwound a rise in the previous session but did not break new ground as trading remained low-volume and choppy. Among the region's other higher-yielding bonds, debt issued by Portugal rallied sharply on the day. Ten-year yields fell 39 bps to a three-week low of 8.32 percent "There's not much flow behind it, but some people are betting that things are going to get a bit better for them after the bond swap and, who knows, maybe the ECB is even going to intervene there at some point. But it's all speculation at this point," one trader said. Earlier this week, Portugal carried out a swap to exchange bonds maturing next year for longer-dated debt, described by the country's debt agency head as a first step towards regaining market access. Morgan Stanley recommended buying long-dated Portuguese bonds as the country edges back toward issuing debt. CLOUDY OUTLOOK Over the medium term, analysts said price developments still hinged on what Spain does to resolve its high debt costs while restoring growth to its recession-ravaged economy. An external aid programme is politically unpalatable for Madrid, but would activate the European Central Bank's bond buying plan -- seen by markets as a powerful tool to lower borrowing costs and bring the bloc's debt crisis under control. The prospect of ECB action prompted short-term bonds, where the bank's buying would be focused, to rally sharply during August but perceived delays by Spain on a bailout request has pushed yields slowly away from their lowest levels. Next week's meeting of euro zone finance ministers had previously been flagged as an opportunity for Spain to make an aid request, but expectations have been pared back and the event may even result in further pressure on Spanish debt. "For sure everyone will keep an eye on the meeting but I don't think there's expectations of a firm decision. It could even expose more the differences in opinion," said Elwin de Groot, senior market economist at Rabobank. "Very short term, this could inject even more uncertainty and therefore a more negative sentiment in the market."

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