* Bunds slip after German GDP, Greek bond repayment * But new highs likely as Greeks scramble for government * Spanish, Italian bonds steady after sell-off By Kirsten Donovan LONDON, May 15 (Reuters) - German Bund prices fell on Tuesday after data showed the country's economy grew more than expected in the first quarter but the move was expected to be short-lived with political stalemate in Greece supporting safe-haven debt. Traders had expected Bunds to open slightly higher and they were sen likely to set new highs in coming days with Greece facing the prospect of another round of elections and the growing possibility the country may leave the euro zone. Greek party leaders were due to convene at 1100 GMT but there was little hope President Karolos Papoulias's proposal to form a technocrat government would end the deadlock . "The German GDP is better than a negative number but it's got very little to do with what's going on and the risks to the system," said Gary Jenkins, director at Swordfish Research. German gross domestic product grew a seasonally adjusted 0.5 percent in the first quarter - well ahead of a consensus forecast, as exports helped the economy bounce back from a fourth quarter contraction. In further relief to financial markets, a government official said Greece will repay a 430 million euro maturing bond - which was not included in its recent debt restructuring - on Tuesday. "The most important thing is whether they end up defaulting on 150 billion euros rather than 430 million," Jenkins said. "If they were to disorderly default then the ECB, EU and the IMF lose a huge amount of money which makes it very difficult for the IMF to come in and increase their backup bailout facilities for the likes of Spain and for politicians to persuade their voters there should be more of a fiscal union." June Bund futures were 13 ticks lower at 143.27, having set new highs of 143.69 the previous day, with 10-year yields 1.5 basis points higher at 1.471 percent, just above all time lows of 1.434 percent. "Trading is very thin and so we're likely to see new highs but at some point we may have to consolidate the recent gains," a trader said, adding that he expected the buying of dips trend to continue. "There's been a bit of buying of quality non-euro zone paper such as gilts and Swedish bonds but some accounts have to stay invested in the euro zone and that's why Bunds are perpetually bid." Markets have already begun to price in the risk of a break-up of the euro zone with fears that chaos in Greece will drag down larger countries such as Spain and Italy. After sharp rises in Italian and Spanish bond yields on Monday, market participants will be keeping a close watch for any signs the European Central Bank may resume its bond buying programme should the paper come under further pressure. Yields on the two countries' 10-year benchmark bonds were, however, broadly steady on Tuesday at 5.91 percent for Italy and 6.28 percent for Spain. The latter will test market appetite for its cheapened paper on Thursday at a 2.5 billion euro sale of shorter-dated bonds, relying heavily on demand from domestic banks with international investors reducing their holdings steadily this year. "It's about as good as it gets from the point of view of hoping the domestic bid resurfaces," said Commerzbank strategist David Schnautz. "It's rather a tiny amount and the maturities have proven over recent quarters to be an easy sell section of the curve."

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