* Portuguese bond yields up 11 bps this week
* Portugal/German bond yield spread widest in 5 weeks
* Biggest jump in Italian yields in 7 weeks
* ECB’s Draghi to speak at Jackson Hole
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices for close)
By Dhara Ranasinghe
LONDON, Aug 25 (Reuters) - Portugal’s benchmark bond yield hit its highest level in almost a month on Friday to cap one its biggest weekly jumps of the year, as renewed focus on the ECB policy outlook weakened sentiment towards lower-rated euro zone debt.
A sell-off in southern European bonds that began with Italy earlier this week spread to Portugal and Spain on Friday.
The premium investors demand to hold 10-year Portuguese bonds over German peers rose to its highest level in five weeks, while Spanish bond yields hit their highest since late July.
Analysts said renewed uncertainty about when the ECB might scale back its monetary stimulus has dimmed the appeal of southern European bonds, a beneficiary of ECB bond-buying.
Those jitters have encouraged investors to unwind carry trades - borrowing in low-yielding assets to invest in higher-yielding ones such as peripheral government bonds.
ECB chief Mario Draghi will speak after the close of European markets at a gathering of central bankers in Jackson Hole, Wyoming, where he is not expected to deliver a new policy message.
But his speech is in focus amid growing talk that the ECB could signal tapering in September or October.
The last time Draghi spoke at Jackson Hole in 2014, he laid the foundations for the ECB’s unprecedented monetary stimulus programme.
“With the summer lull coming to an end and central banks returning, markets are thinking about the future course of ECB action,” said DZ Bank rates strategist Rene Albrecht.
“So investors are taking a more a defensive stance on countries such as Italy, Spain and Portugal and that has accelerated this week.”
Portugal’s 10-year bond yield rose as much as 5 basis points to 2.91 percent, its highest in almost a month. It closed up around 11 basis points on the week. There have been only six other instances this year when yields have climbed more than 10 bps in a week.
Italian yields were set for their biggest weekly rise in seven, having climbed 8 bps.
The gap between Portuguese and top-rated German bond yields was at one stage pushed to around 250 bps, the widest in five weeks. The spread is often viewed as a gauge of how investors view relative risks in the euro zone.
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Reporting by Dhara Ranasinghe; Editing by David Holmes and John Stonestreet