* Spanish yields rise on bout of downbeat newsflow
* Protests, early Catalonia vote, Rajoy comments weigh
* Backdrop drives Bunds more than a point higher
* Bund rises despite technically uncovered German sale
By Ana Nicolaci da Costa
LONDON, Sept 26 (Reuters) - Spanish government bond yields broke above 6 percent on Wednesday after developments in Spain dampened expectations that Madrid will be able to ask for a bailout soon and secure central bank support for its debt.
Protests in Madrid on Tuesday, days before the 2013 budget is due to be announced, together with economically important Catalonia's decision to hold early elections and comments by Prime Minister Mariano Rajoy combined to hurt sentiment towards debt issued by lower-rated sovereigns.
The request for aid is a prerequisite for the European Central Bank to activate its bond-buying programme and the Spanish government's reluctance has kept borrowing costs range-bound in recent weeks, with traders reluctant to take yields too high on the possibility of intervention.
The sell-off in Spanish bonds coincided with a broader deterioration of sentiment towards riskier assets. Appetite for safety drove the German Bund future more than one point higher even as an auction of ten-year German bonds was technically uncovered.
"Spanish yields going over 6 percent says a lot of it. It's bad news all around on the peripheral front," Elisabeth Afseth, fixed income analyst, at Investec said.
She also pointed out a joint declaration issued by Germany, the Netherlands and Finland on Tuesday that appeared to unravel much of what was agreed at the last European summit in June, when EU leaders paved the way for the direct recapitalisation of problem banks.
"If there is any risk that the Spanish bank bailout will be carried by the sovereign rather than any of it transferred so that it is directly funded by the ESM or the EFSF, it's an additional burden on the sovereign," Afseth added.
Debt issued Spain and Ireland -- both of whom had interpreted the June summit as implying that a way would be found to break the debilitating link between their indebted banks and the debts of the government -- underperformed other peripheral debt.
Ten-year Spanish government bond yields jumped 27 basis points to 6.04 percent and borrowing costs over two years surged 25 bps to 3.48 percent.
Spain's Prime Minister Mariano Rajoy said on Wednesday he was ready to seek a new rescue package for his troubled country but only if its debt financing costs remain too high for too long.
The yield on Ireland's October 2020 bond rose 17 basis points to 5.21 percent.
"It's a risk off day but cracks (in the summit conclusions) are particularly negative for Spain and Ireland, so that's the extra kicker," one trader said.
Italian bonds also came under pressure, with ten-year yields rising 6 basis points to 5.17 percent.
The deterioration in risk sentiment saw the German Bund future rally at the open as the S&P 500 on Tuesday suffered its worst day since June and as Japan's Nikkei share average shed 2 percent on Wednesday.
The Bund future added to its gains, even after a technically uncovered German auction, and last stood 90 basis points higher at 140.97, having hit a session high at 141.10.
Germany failed to attract enough demand to meet its 5 billion euro target at a sale of 10-year bonds on Wednesday, as a record low rate of return deterred investors.
German authorities had to pick up 36 percent of the debt after commercial banks bought just 3.951 billion euros of the issue, retaining an exceptionally high amount.
Nick Stamenkovic, bond strategist at RIA Capital Markets described the auction as "pretty sluggish."
"It clearly shows investors were reluctant to bid at those yield levels," he said.
In the secondary market, ten-year German bond yields were 8 basis points lower at 1.51 percent, with some analysts seeing further bond price gains given the current market jitters.
"We would argue Bunds should remain supported in the short-term and buying on dips will continue," Rainer Guntermann, strategist at Commerzbank, said.
The contract tested technical resistance at around 141.00 - a level which it flirted with but failed to break in the previous session and on Sept. 11, Guntermann said.