Euro zone bond yields fall, Italy awaits new 50-year bond

* Euro zone periphery govt bond yields

LONDON, April 7 (Reuters) - Euro zone bond yields fell on Wednesday, with southern European debt markets stabilising after a selloff the previous session as markets braced for new supply from Italy and Portugal.

Italy said on Tuesday it would sell a new 50-year bond and re-open a seven-year bond, while Portugal said it would sell a 10-year bond. The new issues, to be sold via a syndicate of banks, could come this session, analysts said.

They noted that the announcement from Italy came as a surprise to markets, pushing 10-year yields almost 7 basis points higher on Tuesday as investors sold existing bonds to make way for new supply.

In early Wednesday trade, benchmark 10-year yields were lower across the board. Italy’s 10-year yield was down around 2.3 bps at 0.68%, although the gap over German Bund yields held above 100 bps.

Analysts said bond spreads were moving back into focus, especially after a decision by the German constitutional court last month to stop the ratification of the European Union’s Recovery Fund prompted investors to price some risk back into peripheral bond markets.

“The Tesoro’s announcement of a new syndicated 50-year BTP caught markets off guard, with 10-year and 30-year (yield)spreads versus Bunds widening up to 7 bps to the highest level in almost a month,” said Michael Leister, head of interest rate strategy at Commerzbank.

“While thinner Easter liquidity might also play a role, these moves add weight to our tactical shorts in Italy versus semi-core (bonds) and Spain as supply indigestion risk is being compounded by doubts regarding the NGEU (Next Generation EU), the ECB’s resolve and less generous carry differentials.”

An overnight fall in U.S. Treasury yields helped push euro zone bond yields broadly lower.

Germany’s 10-year Bund yield was last down 2.5 bps at -0.34% .

Focus turned to the release of final PMI data for the euro area as well as new releases for Spain and Italy.

The European Central Bank meanwhile is expected to release monthly data on its conventional asset purchases and the bi-monthly breakdown of its pandemic emergency bond purchases on Wednesday, followed by the minutes for its March meeting on Thursday.

Minutes from the latest U.S. Federal Reserve meeting are due out later in the day. (Reporting by Dhara Ranasinghe, Editing by William Maclean)