EURO GOVT-Greek bond yields ease after austerity plan

* Muted reaction by Greek debt to austerity measures

* Bund yields edge up, digesting five-yr German bond sale

(Adds latest prices, fresh comments, austerity plan details)

By George Matlock

LONDON, March 3 (Reuters) - Greek government bond yields fell on Wednesday after Greece pledged to introduce extra austerity measures worth 4.8 billion euros to combat its debt crisis.

German Bund yields edged up after details of the plan emerged, helping narrow the spread of Greek yields over the euro zone benchmark to 288 basis points , from 293 bps earlier in the session and versus 305 bps at the European settlement close on Tuesday.

The spread was last seen at 294 bps.

Greek 10-year yields were down 11 basis points early in the day and extended falls to 6.01 percent, down 15 bps after the measures were confirmed. [ID:nLDE6221AG]

Greece's European partners had called for new measures to cut the country's bulging budget deficit and the steps were seen as paving the way for Athens to go ahead with a planned bond issue.

"It's a supportive step from Greece but I am not sure that putting so much emphasis on the tax side of the equation is worthwhile," said Alan McQuaid, Chief Economist at Bloxham Stockbrokers in Dublin.

"VAT hikes are not guaranteed to bring in revenue if spending patterns alter, for example. Only a property tax has a chance of success because property cannot be concealed," he added.

A government spokesman in Athens said Greece plans to tax the property and income of the church. [ID:nATH005253]

"I know that in Ireland going down the religious route would be disconcerting and offend some people. It smacks a bit of a panic measure too," McQuaid said.

At 1305 GMT, the March Bund future was up five ticks on the day at 124.25.

The two-year Schatz yield was up 1.4 basis points at 0.873 percent. The 10-year Bund yield was up 1.5 bps at 3.125 percent.

The Greek measures were only as much as sought by the European Union to cut the deficit-to-gross domestic product ratio by four percentage points down to around 8.7 percent, said Orlando Green, fixed income strategist at Credit Agricole CIB in London.

"The market wants to see...the European Union's reaction too," Green said.

Greek 5-year credit default swaps fell to 308.2 basis points from 320.1 bps at the New York close on Tuesday. That means it costs 308,200 euros to insure 10 million euros of Greek debt against default within five years. [ID:nLDE6221HK]

German yields remained higher on the day as the market digested a 5 billion euros five-year bond auction. [ID:nLDE6211Y]

GREEK DEBT SALE AFTER MEASURES?

Some dealers were on alert for a possible Greek debt sale this session, in view of the modest decline in spreads to German Bunds seen after news broke of the austerity plan.

But that was not guaranteed to happen after a German government spokesman said Germany will not offer any aid to Greece on Friday when Chancellor Angela Merkel meets Greek Prime Minister George Papandreou in Berlin. [ID:nBAT005175]

"To go for the sale today, the syndicate of banks will need to be sure that any tightening in Greek spreads will not be severe nor sudden. If it is, that will not signal stable and calm markets and therefore won't be conducive to the sale," said another dealer in London.

Ratings agency Standard & Poor's said it was less pessimistic on Greece's debt crisis than financial markets and that the debt problems of some euro zone countries paled in comparison with long-term challenges of population ageing. [ID:nSGE622099]

(Editing by Toby Chopra)