EURO GOVT-Bunds dip, Portugal likely to face more pressure

LONDON, Dec 1 (Reuters) - Bund futures fell on Wednesday ahead of a five-year German bond sale, while a warning that Portugal could face a credit rating cut looked set to keep peripheral debt markets under pressure.
Standard & Poor's said after the European close on Tuesday that it could cut Portugal's credit ratings if growth prospects weaken further or if private creditors become subordinated to public creditors in a possible aid program. 

Portugal's ability to borrow -- and how much it costs -- will be tested again at an auction of treasury bills later. "You would have expected this to some degree, but it's just poor timing more than anything else," said Charles Diebel, head of market strategy at Lloyds TSB.

The 10-year Portuguese 10-year yield PT10YT=TWEB was slightly higher at 7.143 percent in thin early trade. Traders said there was substantial buying of Portuguese debt by the European Central Bank in the previous session..

Lisbon auctions 500 million euros of Treasury bills, with yields likely to hit a euro-era high as markets continue to pile pressure on the region's heavily-indebted sovereigns. [ID:nLDE6AT134]
Pointing to growing global concern over Europe's debt crisis, a senior G20 source in Asia said the group's deputy finance ministers had discussed "the financial situation in Europe" earlier this week. [ID:nL3E6N109X]
At 0742 GMT, the Bund future FGBLc1 was 21 ticks lower at 127.81 unwinding some of the previous session's strong rally.

"Positive momentum is overstretched after yesterday's gains and so far this is being highlighted by the lack of any follow-through buying from the 7am open," said Max Knudsen, technical analyst at PIA First.
Above-forecast German retail sales figures -- showing the strongest growth in almost three years -- also weighed on safe-haven demand for Bunds.

The German finance agency later plans to sell up to 5 billion euros of five-year debt, which will be closely watched for signs of weakness after poor demand at the latest 10-year Bund auction.
"The ongoing jitters in the Eurozone government bond market do not necessarily ensure stellar-looking auction results," said Commerzbank rate strategist David