* Cuts Q4 issuance to 60 bln eur v 89 bln initially planned
* Cut is bigger than market expected; Bunds hit session high
* Germany gains from favourable budget, market developments
* Does not see 30-yr linker, foreign bond issued in Q4
(Adds market reaction, strategist)
By Christina Amann and Paul Carrel
BERLIN, Sept 23 (Reuters) - Germany on Thursday slashed its planned fourth quarter debt issuance programme by a third, reaping the benefits of a robust economic recovery that has eased budget pressures and cut the country's borrowing costs.
An issuance cut was expected but the size of the reduction -- almost 30 billion euros -- took markets by surprise and helped send German government bond futures to a session high.
Germany's Finance Agency, the federal government's debt management office, said it aimed to issue 60 billion euros of debt instruments in the fourth quarter -- down from 89 billion planned in its original 2010 programme, published last December.
"This is a result of favourable developments in the federal budget together with the current situation in the financial markets," it said in a statement.
The euro zone debt crisis has proved a clear help to Germany on debt markets, where risk aversion among investors has meant lower yields -- and lower issuance costs -- on German paper while yields have risen on peripheral euro zone instruments.
Germany had scaled back third-quarter issuance and flagged a similar move in the fourth quarter but the extent of the reduction was bigger than market players expected and boosted already buoyant German government bond prices.
The December Bund future
"We are surprised by the size of the (issuance) cut and the market is too apparently, although it must be said that the Bund reaction is not just due to this," said Carsten Luedemann, capital markets strategist at DekaBank in Frankfurt.
"We are also seeing renewed stress in the euro zone periphery and unfavourable economic data," he added. "The PMIs were rather disappointing -- all this together is behind this Bund reaction."
EXODUS TO QUALITY
Highlighting the flight to quality in debt markets, the premium investors demand to hold 10-year Irish government bonds rather than benchmark German Bunds surged to a euro lifetime high following gloomy GDP data from Dublin. [ID:nLDE68M0M4]
Meanwhile in Germany, stronger than forecast growth has helped ease the strain on the public finances.
The economy grew by 2.2 percent on the quarter in the April-June period -- the fastest quarterly expansion since reunification -- and the government can expect billions more in revenues this year as a result.
The Finance Agency said it planned to issue 2-3 billion euros in inflation-linked bonds in the fourth quarter.
However, the agency's chief, Carl Heinz Daube, said he did not believe market conditions were right to issue a 30-year inflation-linked bond or a foreign currency bond.
Asked if the agency planned to issue either of these instruments in the final three months of this year, Daube told Reuters it would only act when market conditions were appropriate.
"At the moment, I don't see any corresponding market opportunity," Daube said in written answers to questions.
Daube said it was too soon to forecast issuance plans for next year, adding: "We don't yet know the exact indicators and our issuance plans will be closely linked to them."
For a table detailing the fourth quarter issuance plans, double click on: [ID:nBAF004262]
(Editing by John Stonestreet)