LONDON, April 5 (Reuters) - Spanish government bonds extended losses on Thursday, dragging Italian paper lower in tandem as worries grew about Spain's ability to meet deficit targets and fund itself after a poorly received auction in the previous session.
Spanish 10-year yields were 8 basis points higher at 5.79 percent, pushing the spread over Bunds to 404 basis points, the most since late November.
"It looked like we were over the worst of it with the three-year (ECB funding operation) and Greece out of the way... but now with the focus on Spain and Portugal we're looking at a different kettle of fish," a trader said.
Two-year paper underperformed with yields up 11 basis points at 2.97 percent.
Safe-haven German Bunds hit a three-week high of 138.98, up 56 ticks on the day with traders saying stops were triggered at Wednesday's 138.74 high, a level acting as market resistance, and potentially allowing the market to extend gains to March's high of 139.06.