* Spain sells larger-than-expected 6.6 bln euros of bonds
* Flood of issuance weighs on market, yields rise
* Greek uncertainty should limit losses for Bunds
By Kirsten Donovan and Ana Nicolaci da Costa
LONDON, Jan 19 (Reuters) - Spanish bond yields rose on Thursday as the market tried to digest a larger-than-expected debt auction which left the sovereign well ahead of its issuance schedule for the year.
Spain sold 6.6 billion euros of bonds against a target amount of 4.5 billion after selling double the intended amount at a sale last week.
With even the longer-dated 10-year paper on offer drawing solid demand, hopes were raised that the European Central Bank's longer-term liquidity provision was helping to ease funding pressures on peripheral issuers.
But Spanish yields rose in the secondary market as the market struggled to accommodate the large amount of new paper.
"The Spanish have been exceeding their auction limits and are more than 20 percent through their total expected issuance for this year, so as the market takes down the supply you would expect some degree perhaps of indigestion," Richard McGuire, rate strategist at Rabobank said.
Spain has now completed a fifth of its targeted 2012 funding.
"They made a mistake this morning and left the market long after the auction, the management of these recent auctions has been pretty poor," said one trader.
"They had better be confident they can hold these kind of bids from the domestics because the primary dealers are getting (hit)."
France also found solid demand at an auction of shorter-dated debt, the first since Standard & Poor's stripped the country of its triple-A rating.
The ECB's near half trillion euro injection of three-year funds has bolstered demand for shorter-dated euro zone debt, and analysts said it was positive to see the demand spreading to the longer-end of the Spanish curve.
"They look decent ... French auctions never disappoint. Especially (in) this period, with the extra liquidity around, it would be very surprising for French auctions not to have good bid-covers," Achilleas Georgolopoulos, strategist, Lloyds Bank said.
BUND APPETITE
Better sentiment towards lower-rated bonds helped underpin appetite for riskier European stocks at the expense of bonds.
The German Bund future saw a settlement close of 138.96, down 91 ticks on the day.
The losses were accentuated by a fall in the U.S. jobless claims and after solid demand at an Austrian debt sale.
Austria is set to raise 5 billion euros for its 10- and 50- year bonds, only days after it also lost its cherished triple-A rating from Standard & Poor's.
But analysts say there is fundamental support for safe-haven German debt with Greek debt talks, critical to avoid a disorderly default, dragging on..
"We still think that this is purely a liquidity related effect and that fundamentals will ultimately win the day and there are clear triggers for that, the Greek debt negotiations ... are a key pressure point in this regard," McGuire added.
Greece meets its private creditors for a second day after the talks hit an impasse last week. It is crucial an agreement is reached within days to pave the way for Athens to receive further aid in time to redeem a 14.5 billion euro bond in March.
Portuguese bonds have come under pressure since the country lost its last investment grade credit rating on Friday and with fears that any Greek deal could be used as a blueprint for Portugal despite officials saying Greece was a unique case.
The spread of 10-year Portuguese bonds over German Bunds touched a euro-era high of 1,300 basis points as yields rose 16 bps.
