* Italy to auction 7 billion euros of bonds
* Initial optimism over Greek deal give way to doubts
* IMF’s Lagarde says no substantial results in Greek talks
By Emelia Sithole-Matarise
LONDON, May 28 (Reuters) - Italian bond yields edged up on Thursday as investors made way in their portfolios for up to 7 billion euros of new debt from Rome in a cautious market after conflicting reports on the progress of Greek debt talks.
Italy will sell five-, 10- and 17-year bonds and while the sales are expected to be taken down smoothly, some strategists said a lack of clarity over Greece may see jittery post-auction trading.
Lower-rated euro zone bonds had rallied Wednesday after Greek officials spoke optimistically of reaching a cash-for-reforms deal, with economy minister George Stathakis saying Greece and its international creditors have converged on key points.
International Monetary Fund President Christine Lagarde said in a television interview on Thursday that there were no substantial results in talks with Greece so far.
German Finance Minister Wolfgang Scheuble also said there was not much progress in the debt talks and that he was surprised by the upbeat tone from some Greek government officials.
Uncertainty over whether Greece can get the support it needs to make payments to the IMF on June 5 is likely to keep investors wary of increasing exposure to riskier assets for now.
Italian 10-year yields rose 2 basis points to 1.87 percent while Spanish equivalents were 1 bps higher at 1.82 percent.
“I don’t think you’ll have a bad auction but the market will have to digest this supply against the backdrop of uncertainty (over Greece) and this may lead to some volatility like we’ve seen in recent weeks,” said Commerzbank strategist Benjamin Schroeder.
“Scepticism certainly remains warranted given Greece’s track record in recent months of being overly optimistic.”
German yields, the benchmark for euro zone borrowing costs, were 3 bps down at 0.53 percent, reversing Wednesday’s rise as investor appetite for riskier debt cooled.
Greek bond yields were indicated flat before the start of trading at 0730 GMT. (Editing by Toby Chopra)