Aug 31 (Reuters) - German government bonds fell with investors largely sidelined and looking to see whether Federal Reserve Chairman Ben Bernanke will hint at further bond purchases at a speech later on Friday. Bernanke is expected to acknowledge the U.S. central bank is considering another round of monetary easing in his Jackson Hole speech, but could disappoint markets if he stops short of signalling a third round of bond-buying is imminent. Aside from an initial knee-jerk reaction, Bunds are likely to drift within current ranges in the run-up to next Thursday's European Central Bank meeting. ECB President Mario Draghi is expected to flesh out details of its own proposed bond-buying programme. "For Bunds, Bernanke is an important staging post but it is the ECB meeting which is paramount," said Rabobank rate strategist Richard McGuire. "If Bernanke dampens hopes of further stimulus then that would be a negative for risk assets and a positive for Treasuries and Bunds...but moves would be limited into the ECB next week." September Bund futures fell 45 ticks to 143.70. Traders said the move was exaggerated by very thin trade. "It's about Bernanke today but ultimately it's hard to see that the ECB will give us any definitive answers next week so there's room to rally," a trader said. "Peripheral tensions could well come back to the fore next month as it seems the market is massively optimistic about what the ECB will do." Remarks by ECB policymakers had somewhat dented this optimism, trader said. Board member Joerg Asmussen said on Thursday the International Monetary Fund should be involved in drawing up conditions for any bond-buying programme , while Governing Council member Ewald Nowotny also stressed the need for conditions. Investors are hungry for details of ECB proposals that would lower borrowing costs for struggling euro zone countries such as Spain and Italy. Anxiety over whether the central bank will deliver has helped German debt pare its recent losses and 10-year Bund yields were last at 1.33 percent. On the day of the ECB meeting, Spain returns to the primary market after a month's break. Spanish 10-year government bond yields were a basis point higher at 6.63 percent, with equivalent Italian yields up 2.5 basis points at 5.82 percent. The prospect of ECB intervention has helped lower borrowing costs for both countries since late July but year-to-date returns highlight the disparity between the two issuers, with concerns about Spain - which is expected to ask for a bailout - much higher than those of Italy. By the end of August, Italian bonds had returned 10.6 percent on a total return basis, according to the iBoxx index, while Spanish bonds had lost of 3 percent. Moody's reminded markets overnight that it had the country on review for downgrade, a process that could take until the end of September.

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