* Bunds retreat from record highs as equities rebound * Losses limited on Greek, Spanish bank concerns * Pick-up in riskier assets provides respite for periphery By Emelia Sithole-Matarise LONDON, May 22 (Reuters) - Spanish and Italian government bond yields fell on Tuesday on speculation European leaders may come up with new measures this week to foster growth in the euro zone and restore market confidence. An informal supper summit of European Union leaders on Wednesday is also expected to discuss the idea of euro area bonds jointly underwritten by all euro zone member states but Germany's long-standing position is unlikely to change. European equities rose 0.7 percent with the more optimistic tone in riskier assets helping to pull down Spanish and Italian 10-year yields but the scope for further falls was limited by concerns that Greece could still quit the euro after next month's elections. "Tomorrow's meeting will not deliver any landmark solution. The market is likely to be more prone to disappointment," said Matteo Regesta, a strategist at BNP Paribas. "There's this delusion of a quick fix either via monetary policy with the European Central Bank or via some kind of fiscal decision but unfortunately this wont happen. We can only have adjustments over time." Italian and Spanish 10-year yields fell 13 basis points each to 5.81 percent and 6.16 percent respectively but Irish and Portuguese equivalent yields rose, showing nerves over Greece remained stretched. Ireland and Portugal are seen as vulnerable should Greece leave the euro zone. The reprieve for Spanish debt could also prove temporary after the Institute of International Finance said Spain's banks could need another 76 billion euros to cover loan losses as the country's deteriorating economy could drive bad debts as high as 260 billion euros. Irish 10-year yields were up four bps at 7.48 percent , having risen back above 7 percent over the past couple of weeks as fears of contagion from Greece grew. The Organisation for Economic Co-operation and Development warned in a report on Tuesday that Ireland's economic recovery risked being derailed by the fallout from the euro zone debt crisis. DESPERATE Bunds retreated from recent record highs but traders still saw underlying demand for safe-haven debt on scepticism that EU leaders would come up with concrete measures that would change market sentiment. "The market is getting ahead of itself again but given the rally we've had, risk (assets are) desperate for anything to hang on to at the moment," a trader said. The June Bund future was 25 ticks down on the day at 143.32 with German 10-year yields up three bps at 1.46 percent. "If we do have slightly positive developments that could support further falls but we don't see big selling pressure because of the uncertainties before the summit and the Greek elections," said Norbert Wuthe, a senior fixed income strategist at Bayerische Landesbank. UBS technical analyst Richard Adcock said the futures could see limited bounces but were vulnerable to further falls while trading below the all-time peak of 144.06 hit on Friday, adding the immediate risk was a retest of Wednesday's low of 142.83.

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