* German Bund futures rally as Greece fallout fears resume * Italian debt bears brunt of shift away from risky assets * German 30-year bond sale solid despite record low yield By William James LONDON, Jan 25 (Reuters) - German Bund futures rose and Italian bonds came under pressure on Wednesday as the recent run of risk appetite showed signs of breaking with investors taking a more cautious view of the fallout from Greek debt talks. Greece and its private creditors are struggling to reach an agreement on how to secure the large debt reduction Athens needs to make in order to unlock access to aid funds. That has led to calls, notably from the International Monetary Fund, for the public sector to consider sharing the burden of losses needed to set Greece on a sustainable path. That could include the European Central Bank which is estimated to have bought around 40 billion euros of Greek bonds since May 2010 in an emergency effort to stem pressure on the ailing sovereign. "The Greek newsflow was bad overnight and now the German press are running stories on the ECB having to write down their Greek bond holdings. The Greek deal is falling apart and it's a massive blow to the ECB and the future of the SMP (bond-buying programme)," a trader said. Markets had been sanguine over the slow progress towards a private sector deal, but the lengthy delays and risk that, faced with losses, the ECB could withdraw or cut back the support it provides to Italy and Spain, prompted fresh concern. "I expect that the German, Dutch and Finnish (ECB) members might ask for a slowing or stopping in the process of the SMP," said Alessandro Giansanti, strategist at ING in Amsterdam. "But at some point they have to realise that there is no way or opportunity to keep countries like Italy and Spain under control... there is no other facility." Bund futures rose half a point to stand at 137.80, ending a four day run of losses. Italian 10-year yields rose 13 basis points on the day to 6.31 percent. Analysts also cited Italy's upcoming supply of short-term bills this week and bonds next week as weighing on demand. LONG BOND STRONG Reflecting the recovery in appetite to hold German debt for its safety and liquidity, Germany found strong demand for its 30-year bond auction despite the record-low yields on offer. "There still seems to be a lot of demand for safety out there. Investors are cash-rich in general and are looking for ways to park their money, preferably in safest debt," said DZ Bank strategist Michael Leister. "We've seen a decent sell-off in Bunds over the past sessions, but overall the market doesn't seem to be full-heartedly supportive of this risk-on sentiment." The 30-year issue was sold at an average yield of 2.62 percent. In the cash market, 10-year German yields fell away from the two percent level to stand at 1.96 percent, down 4 basis points on the day. The 10-year yield has met stiff resistance at the 2 percent barrier in recent sessions, and even an above-forecast improvement in German business sentiment failed to provide the momentum for a decisive break higher.

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