* China easing expectations curb safe-haven flows * Uncertainty about ECB plan to limit Bund losses * Spanish, Italian yields steady, but sentiment fragile By Marius Zaharia LONDON, Aug 9 (Reuters) - German Bund futures dipped on Thursday as a slowing in Chinese inflation supported riskier assets, but uncertainty over when the ECB would resume bond purchases and how effective such a move might be was seen limiting losses. China's annual consumer inflation fell to a 30-month low, fuelling expectations of further policy easing in the world's second-largest economy. European stocks rose. Euro zone bond markets started the week on a positive note, with short-dated Spanish and Italian bonds rallying and safe-haven Bunds selling off after the European Central Bank said it may resume buying government bonds. But Bunds rebounded on Wednesday as investors switched their focus to the ECB's pre-condition for action - that troubled countries ask for help from the euro zone's rescue funds. This raised the risk that the debt crisis in Spain and Italy may have to get worse before policymakers make a move, traders said. The bloc's permanent bailout, the European Stability Mechanism, still needs a green light from the German Constitutional Court, which rules on Sept. 12. "We're in a waiting game. This crisis has got to worsen enough for Spain to be forced to enter a bailout programme such that the ECB's willingness to buy it's bonds is tested," Rabobank rate strategist Lyn Graham-Taylor said. "But it's very difficult to know which way the ECB is going to go. They could get scared (of political risk) and make a lot of caveats on how they are going to run this programme or they can actually be quite aggressive." Talk of forceful ECB forays into bond markets was unthinkable five years ago, when the central bank introduced its first non-standard measures by holding an unlimited cash tender to unfreeze money markets hit by the incipient global crisis. "Today, after the ECB has cut rates to zero, provided 1 trillion euros of three-year liquidity against broader collateral and bought some 300 billion euros of peripheral sovereign and covered bonds outright, it seems clear that this was still not 'enough'," Commerzbank strategists said in a note. Bund futures were 17 ticks lower at 142.58, while benchmark 10-year German yields, were up 2.5 basis points on the day at 1.45 percent. That compared with a record low of 1.126 percent hit on July 23, but was comfortably within the roughly 1.2-1.6 percent range in which they have traded in recent months. "Until we get more details on the plan and Spain asks for help we can be in a consolidating phase," one trader said. "Stocks are trading well and that's not helping the core (euro zone debt) but we're going to move around in thin volumes because I don't know why we should make a significant break either way." Spanish and Italian 10-year yields were 5-6 bps lower at 6.86 percent and 5.84 percent, respectively. Their two-year yields, which roughly halved in the past two weeks on the ECB's pledges to intervene, were flat. Spain dodged a bullet late on Wednesday when rating agency DBRS downgraded it only to A (low) - a level which would ensure the cost for banks to use Spanish bonds as collateral for ECB funds stayed the same. A drop below the A level would have led the ECB to charge banks an additional 5 percent penalty. DBRS also downgraded Italy to A from A (high).

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