RTRS:EURO GOVT-Bunds gain further on Spain, ECB uncertainty
* Spain negotiating aid with euro partners-sources
* Bunds rise, in middle of three-month range
* Uncertainty over next policy moves dominates markets
* Greek euro exit worries back in focus
By Marius Zaharia
LONDON, Aug 24 (Reuters) - German Bund futures rose on Friday, as uncertainty over how euro zone policymakers will attempt to make Spain's borrowing costs affordable supported safe-haven assets and worries over Greece also kicked in.
Sizable gains this week brought Bunds just above the middle of the range between July's highs and August's lows. Some analysts said they could rise further in the near future unless Spain and the European Central Bank clarified their plans.
Spain is negotiating with its euro zone partners over conditions for financial aid but has not made a final decision to seek a bailout, three euro zone sources said on Thursday.
Such a move may be enough to persuade the ECB to resume buying Spain's bonds in secondary markets to lower its borrowing costs, but uncertainty remains over when that might happen and how forceful it would be.
The risk that Greece may not receive its next bailout tranche also came back into focus. Greek Prime Minister Antonis Samaras is due to meet German Chancellor Angela Merkel on Friday and French President Francois Hollande on Saturday.
The "troika" of international lenders will go to Athens next month to see how far behind Greece is in meeting the terms of its bailout agreement.
"The market is getting a bit nervous," ING rate strategist Alessandro Giansanti said. "There are worries that Greece at some point will not receive (further aid)...and may be forced to leave the euro and Spain is close to a fully-fledged bailout."
Bund futures were last 18 ticks higher on the day at 143.68, with 10-year cash yields down 1.4 basis points at 1.36 percent, having traded roughly in a 1.2-1.6 percent range over the European summer months.
Giansanti said yields could move closer to 1.2 percent in the near term, but new record lows were unlikely in the absence of "shock events" such as Greece leaving the euro.
Rabobank rate strategist Lyn Graham-Taylor said Bunds' direction before the next ECB meeting on Sept. 6 would depend on any "leaks" of the central bank's plans.
Markets have speculated that the ECB may enforce a cap on Spanish and Italian yields or that its bond-buying could be unlimited in size when it resumes but the bank has sought to dispel such rumours.
"We have this huge amount of event risk in September and ... the market does not want to take a view on anything. So it all depends on headlines and any leaks from the ECB and that is very hard to predict," Graham-Taylor said.