* Bund yields dip ahead of German data, ECB speakers
* Short-dated bonds sensitive to normalisation comments
* Peripheral spreads steady in early trade
By William James
LONDON, Oct 19 (Reuters) - Bund yields edged lower across the curve on Tuesday with investors looking to German data and speeches from euro zone policymakers for fresh signals on the pace of economic recovery and policy normalisation.
The short end of the German yield curve has been sensitive in recent days to comments on the ECB's determination to continue a withdrawal of the extraordinary support it has provided to the banking system since 2008.
But differing views on the pace of the moves -- notably between the hawkish Bundesbank chief Axel Weber, and a more cautious approach from ECB President Jean-Claude Trichet -- have caused uncertainty and fuelled volatility.
"There really seems to be a divide, and any comments which give a hint on how the situation is evolving are really moving the market ... especially at the very short end," said Michael Leister, strategist at WestLB in Dusseldorf.
Signs that the ECB was leaning toward a more hawkish stance could send two-year German yields as high as 1 percent in the short term, analysts said.
Investor sentiment indicators from Germany, the euro zone's largest economy, could also add to views on whether the ECB's target of withdrawing support measures is credible.
A survey by the ZEW think tank was expected to show investor morale worsened during October, with the sentiment indicator forecast at -8.0, down from -4.3 in September. A separate indicator of current conditions was forecast to show improvement in October.
"If the outlook comes in worse than expected that should support Bunds, it fits in with the view that the growth we saw earlier in the year isn't sustainable," a trader said.
However traders stressed that with much of the focus on the short end of the curve and money market rates, the indicator would have to miss forecasts by a sizeable margin to provoke a strong reaction in Bunds.
The Bund future was 1 tick lower at 130.53. The 10-year German bond yield was 2.381 percent, down 0.4 bps on the day while the two-year Schatz yield was 0.893 percent, down 1 bps.
PORTUGUESE BUDGET
After rallying strongly over the last week, the currency bloc's higher yielding sovereigns were steady in early trade, with much of the attention centring on Portugal with the country's opposition party meeting to discuss a draft budget.
Markets look confident that the government will pass its 2011 budget without political hitches, with the Portuguese/German 10-year yield spread has tightened by around 90 bps since Oct. 8.
That is despite the opposition's continued refusal to come to terms on a budget that is crucial to Portugal's efforts to avoid a slide into fiscal crisis and an EU bailout similar to that given to Greece.
"There's too much political pressure for there to be any major wrangling... It should get pushed through without any major problems," said Orlando Green, rate strategist at Credit Agricole.
The Portuguese spread was last at 321 bps, flat on the day.
(Reporting by William James; editing by Patrick Graham)