Traders said the ECB had not yet entered markets to support Italian and Spanish debt in this session but as long as confidence remained high that it would, investors were prepared to continue buying to close out bets of further rises in yields.

"We haven't seen (ECB buying) yet but the expectation is that they will be in again, and in good size," a trader said.

The central bank became a reluctant buyer of Italian and Spanish debt for the first time on Monday in an emergency response to head off mounting pressure on the highly indebted sovereigns.

That support has seen yields fall by around a full percentage point on 10-year Italian and Spanish debt. The Italian yield was down 8.5 basis points on the day at 5.245 percent while Spanish debt stood at 5.136 percent, down 7.5 bps.

European equities fell, but losses were less severe than markets had originally anticipated after major Asian indices pared their losses following a severe selloff.

Bund futures were last 8 ticks lower at 133.00 having earlier sank to a session low of 132.46. The contract had already traded in a wide range of more than 100 ticks during the volatile session.

"Given the high levels we have been trading at and the extreme volatility, moves don't have to be based on a sustained change in sentiment. It's more about short-term mood swings," said WestLB rate strategist Michael Leister.

The bond market's fragile risk appetite looked set to keep the pressure on the euro zone's lower-rated debt, testing the resolve of the European Central Bank to support Italy and Spain and ramping up pressure on the region's other sovereigns.

"At the end of the day Italy and Spain are out of the game so we'll be looking at Belgium and France next -- the ones without protection," a second trader said.

Yields on 10-year French government bonds were 7.5 basis points higher on the day at 3.22 percent.

Copyright Reuters, 2011