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Spanish inflation rise pushes German Bunds lower

* Spanish inflation picks up in November, German CPI eyed

* ECB less pressured to ease policy further

* Italian 10-year yields fall to 7-month low at auction (Updates with Italian auction, fresh comments)

By Marius Zaharia

LONDON, Nov 28 (Reuters) - German Bund futures fell on Thursday after Spain reported that annual inflation rose in November, reducing pressure on the European Central Bank to ease monetary policy further.

Spanish inflation rose 0.3 percent year-on-year in November from zero the month before, fuelling expectations that euro zone inflation will exceed a 0.8 percent forecast. The report is due on Friday.

An unexpected drop in annual euro zone inflation in October to 0.7 percent - well below the ECB's close-to-2 percent target - prompted the central bank to cut its key refinancing rate to a record low of 0.25 percent earlier this month.

Expectations of lower energy prices, after a deal to ease sanctions on Iran if it curbs its nuclear activity, have led to speculation the ECB could do more to relax monetary conditions.

"The Spanish inflation figure ... will take a little bit of pressure off the ECB to do something at the next meeting (on Dec. 5)," said Elwin de Groot, senior market economist at Rabobank in Utrecht.

Bund futures were last down 23 ticks on the day to 141.40, coming off the day's low at 141.14 as caution set in before the German inflation data at 1300 GMT. Ten-year German Bund yields rose 2 basis points to 1.72 percent.

Low volumes because of the U.S. Thanksgiving holiday were expected to exaggerate price moves throughout the day.

Although the Spanish inflation report weighied on Bunds, it could not kill off speculation of further ECB easing.

"We are definitely expecting much more action from the ECB," said Jussi Hiljanen, chief fixed income strategist at SEB in Stockholm. His expects the ECB to begin an asset-purchase programme next year.

Also pushing Bunds lower on Thursday was the contrasting central bank outlook on the other side of the Atlantic. An unexpected fall in U.S. jobless claims and upbeat consumer sentiment indicator on Wednesday raised expectations the Federal Reserve will start trimming its bond-buying stimulus as early as next month.

"Expectations of tapering in the U.S. will put (upward)pressure on Treasury yields, with some spillover in Bunds, but the impact on Bunds will be less pronounced because of the ECB (outlook)," said Luca Cazzulani, UniCredit strategist in Milan.

ITALIAN AUCTION

At its last 10-year debt auction this year, Italy's borrowing costs fell to a seven-month low. Demand was 1.5 times the 2.5 billion euros sold, in line with a previous auction.

Some investors may have been encouraged by the expulsion of former premier Silvio Berlusconi from the Italian parliament over a tax fraud conviction, analysts said. Berlusconi's departure could help to stabilise Prime Minister Enrico Letta's government, they said.

Letta won a confidence vote late on Tuesday with the help of a splinter group from Berlusconi's party.

"More stability for the government seems to be the most likely scenario near term. With Berlusconi out of the Senate and his close allies (in) the opposition, snap elections are less likely at the current juncture," said Annalisa Piazza, market economist at Newedge in London.

Italian 10-year yields were flat at 4.07 percent. (Reporting by Marius Zaharia; Editing by Janet Lawrence, Larry King)