* Bund selloff meets technical resistance, yield rise slows
* Markets look to upcoming economic data for fresh signs
* Italy supply seen well supported, German auction less so
By Marius Zaharia
LONDON, Jan 29 (Reuters) - Selling pressure on German debt eased on Tuesday when technical barriers prompted investors to weigh the implications of economic data before backing any further selloff.
Bunds have fallen sharply since the start of the year as newly-confident investors switch to riskier assets such as stocks, and the move accelerated this week on upbeat U.S. data and larger-than-expected loan repayments to the European Central Bank.
Nevertheless, after such a steep fall Bunds showed some resistance and traded slightly stronger on the day. Futures contracts were 3 ticks higher at 141.82 while 10-year yields were flat at 1.69 percent.
"We've bounced off some technical levels around recent lows (in price) as some people are taking profits, a few are putting new longs ahead of this week's data," one trader said.
"But from the way the market sold off recently, you'd still think bears are in control and, for choice, most people will be looking to sell into strength," he added, referring to investors that had a bearish view on Bunds.
Market participants said 10-year yield levels were approaching technical resistance around the 1.737 percent highs last seen in September 2012, but that they did not expect a lasting reversal in the selling pressure on Bunds.
"We're in a scenario in which we have a bit of a sell-off, then technicals kick in and it all becomes a bit self-fulfilling," a second trader said.
"Trying to buy feels like catching a falling knife. You need a strong reason to buy and I don't think we've seen one apart from just some views that it (the sell-off) has gone too far."
He said Wednesday's euro zone economic sentiment data and the U.S. non-farm payrolls report on Friday would be key for investors to decide whether to start selling Bunds again. "I'd like to see stronger data going forward to vindicate these moves (the recent sell-off)."
As well as economic data, Wednesday's session brings the second of two rounds of bond sales this week from Italy and an auction of ultra-long bonds from Germany.
The Italian supply was expected to match recent strong auctions, helped by large redemption payments from an expiring BTP bond and the market's generally strong appetite for more risky but higher-yielding debt.
A 3 basis point fall to 4.17 percent on the Italian 10-year yield supported expectations of a strong sale, showing that dealers were not trying to push yields up ahead of the auction in the usual concession-building process.
Unicredit said the 10-year bond on offer made an attractive swap for holders of the existing August 21 bond, offering a yield pickup of 44 bps - a near record for the spread between the two.
Demand for the German ultra long bond was expected to be sufficient to ensure a smooth sale but a recent flattening of the yield curve caused by rising short-term rates had reduced the attractiveness of the paper.
"We've seen flattening pressures developing recently; I'm not sure that these point to very strong demand for ultra-long papers. Probably tomorrow's sale will go well, but I'm not expecting very massive demand," said BNP Paribas rate strategist Patrick Jacq.