* Spain treasury minister says market door effectively shut
* Reaction muted as analysts say Spain still has access
* Investors reluctant to take positions before G7, ECB
By Marius Zaharia
LONDON, June 5 (Reuters) - German debt prices rose and Spanish bond yields briefly jumped on Tuesday after Spain's treasury minister said the country was effectively shut out of the market, but investors were reluctant to take new positions before a G7 conference call.
The outside possibility that finance chiefs of the Group of Seven countries may agree to new anti-crisis measures later in the day or that the European Central Bank may ease monetary policy on Wednesday kept markets cautious.
With prospects of decisive steps slim, underlying worries about Spanish banks and a June 17 Greek election that may push Athens out of the euro were expected to dominate sentiment.
Markets also looked ahead to a Spanish debt auction of up to 2 billion euros of medium- and long-term bonds on Thursday. The sale looked more complicated after Treasury Minister Cristobal Montoro said the country's high borrowing costs meant "Spain doesn't have the market door open".
Spanish 10-year bond yields were 1.3 basis points lower on the day at 6.40 percent, having risen as high as 6.45 percent after Montoro's comments.
"Montoro's comments ... are weighing on sentiment a bit. The market is quite nervous still, these remarks will make the auction more difficult," said Emile Cardon, market economist at Rabobank.
"(But) there's possibly also some short-covering going on in Spain because we saw quite a move last week and, ahead of G7, some are closing their position and waiting for the news."
While analysts shared Montoro's view that Spain's borrowing costs are too high, they said Madrid still had market access.
"I don't think markets are closed for Spain ... I think he meant to say something else," BNP Paribas rate strategist Patrick Jacq said, adding that the small size of Thursday's auction should ensure the sale will not flop.
"If the recent bias on Spanish yields will go on further, especially for the five- to 10-year area at some stage it will be a big problem for Spain ... but so far it's manageable."
Bund futures were last 29 ticks higher at 146.07. They remained close to record highs of 146.89 hit on Friday, when cash yields hit record lows across the curve and two-year yields briefly turned negative for the first time.
Weaker-than-expected euro zone retail sales ID:nL5E8H52XT] and German services PMI data also helped Bunds.
Beyond the G7 talks, some in markets speculated the ECB may come up with crisis-fighting measures at its meeting on Wednesday, the day after a long bank holiday weekend in Britain.
Speculation the ECB may ease monetary policy has grown in recent days, but such bets carry high risk. Most economists in a Reuters poll expect the central bank to hold fire.
ING rate strategist Alessandro Giansanti estimated the forward overnight Eonia euro interbank rate market priced in a 22 percent probability that the ECB will cut rates by 25 basis points from a record low of 1 percent.
"Markets are still speculating on that and also on some kind of measures on the banking side, like creating some kind of deposit insurance or allowing the EFSF or ESM (bailout funds) to directly help banks," Giansanti said. "There is still a lot of uncertainty regarding policy actions."
Other clues to possible policy steps may come in testimony by U.S. Federal Reserve Chairman Ben Bernanke on Thursday.