* Bund yields edge up on "not so dovish" Fed statement
* Investors continue to expect ultra-easy Fed, ECB policy
* Nowotny says ECB will provide more liquidity
By Marius Zaharia
LONDON, Oct 31 (Reuters) - German bond yields rose on Thursday after the Federal Reserve sounded less alarmed about the U.S. economy than many investors had expected, just about keeping open the door to the possibility of trimming monetary stimulus this year.
Citibank shortened its odds of a cut in December in the Fed bond-buying that has propped up top-rated global bond prices this year, but most analysts are still firmly convinced it will not move before March next year.
The rise in yields was swiftly capped by lower-than-expected French and German consumer spending data and expectations that the European Central Bank would act to bulk up banking sector liquidity if need be.
The Fed kept its $85 billion-a-month asset purchase plan intact on Wednesday, acknowledging the negative impact that a recent standoff over the U.S. budget would have on the economy and the fact that a recovery in the housing market had slowed.
But the central bank removed a reference to tighter financial conditions from its statement, suggesting greater comfort with the current level of market rates.
German 10-year Bund yields rose 2 basis points to 1.71 percent, tracking an overnight move higher in U.S. T-note yields, their top-rated peers. Bund futures fell 20 ticks to 141.65, having hit a two-month high of 141.90 on Wednesday.
"(The Fed statement) was still dovish, but maybe not as dovish as the market was positioned for," said Patrick Jack, rate strategist at BNP Paribas in Paris.
"It probably sets a 2.50 percent floor (on yields) in Treasuries and a 1.70 percent floor in Bunds."
Commerzbank rate strategists recommended short positions in Bunds for the day, even though they still expected the Fed to keep the current pace of stimulus until March next year.
Sanjay Joshi, head of fixed income at London and Capital expected the Fed to move in April.
"I didn't see any big change of tone in the statement. It was still very dovish and we still expect tapering to occur sometimes in April ... But views in the market are very dispersed - some are going for December," Joshi said.
He added the dispersion of views regarding the Fed outlook could make longer-dated bonds more data sensitive and volatile, so he cut the overall duration of his bond portfolio.
ECB'S TURN
Bund losses were limited by speculation that the European Central Bank, which meets next week, might do a better job than the Fed in meeting market expectations in terms of "dovishness".
Governing Council member Ewald Nowotny said the ECB will provide more liquidity to banks by the time the cheap three-year crisis loans offered in late 2011 and early 2012 expire. He declined to specify how and when exactly.
The euro fell against the dollar on his comments, breaking below $1.37 early on Thursday before the Bund market opened.
Below-forecast German retail sales data and French consumer spending on Thursday also supported expectations of further ECB easing.
October euro zone inflation data is out at 1000 GMT and may fall further below the ECB's roughly 2 percent target after an unexpected slowdown in German price growth on Wednesday.
Inflation in the euro zone was 1.1 percent in September.
"The Fed's statement leaves the door open for a further move higher in yields in the near term, though more weak inflation numbers from the euro zone today should limit the upside potential for German yields," said Jan von Gerich, chief fixed income analyst at Nordea in Helsinki.