* Yields fall again with more dovish ECB signals * Italian yields see biggest 5-day falling streak since July 2020 * German auction sees technical failure with record low demand (Updates prices, adds analyst comment) May 26 (Reuters) - Euro zone bond yields continued falling on Wednesday in a market buoyed by fresh dovish signals from the European Central Bank, though that failed to attract demand for a German debt auction. Euro area yields rose sharply earlier in the month, driven by speculation that a stronger economic outlook driven by speedier vaccinations in the bloc could prompt the ECB to slow its pandemic emergency bond purchases (PEPP) purchases at its June 10 meeting. Those bets pushed Germany’s 10-year yield, the bloc’s benchmark, to two-year highs near positive territory last week, and the risk premium on Italian bonds to levels seen last November, before the ECB expanded the stimulus. But comments from ECB President Christine Lagarde last week that it was too early for the central bank to discuss slowing its PEPP, reinforced by comments from several others, have removed the upward pressure on euro area bond yields. Adding to the dovish mood, ECB board member Fabio Panetta said on Wednesday the ECB should not reduce the pace of asset purchases as the economic recovery is in an early phase and inflation remains too low. Germany’s 10-year yield fell below -0.20% for the first time since May 11, and was down 4 basis points by 1523 GMT. Italy’s 10-year yield fell 4.5 bps to 0.92%. It has declined nearly 20 basis points from May 20, in the biggest five-session falling streak since July 2020. The closely watched spread between Italian and German 10-year bond yields -- effectively the risk premium on Italian debt -- was at 112 bps, compared with nearly 125 bps last week. “The market is ... in wait-and-see mode with regards to the ECB,” said Jolien van den Ende, rates strategist at ABN AMRO. “It’s the perfect timing to position for spread tightening,” she said, anticipating that the ECB will continue bond buying at this quarter’s pace during the third quarter. But the rally in German bonds failed to prevent a 15-year auction resulting in a technical failure, with bids of 1.83 billion euros falling short of Germany’s 2.5 billion euro target, in the fourth such failure this year, according to Refinitiv IFR. Demand of 1.06-times the allotted amount - what remained after Germany’s finance agency retained part of the target amount - was also a record low for a 15-year bond, a maturity first launched last May, according to data from the agency. “It suggests that the recent rebound in bonds (and Bund) is not so much driven by a change of attitude toward fixed income as it is by technical factors,” said Antoine Bouvet, senior rates strategist at ING, referring to month-end flows which benefit bond markets as asset managers tend to rebalance their portfolios then. Elsewhere, Italy raised 4.75 billion euros from the reopening of a short-term bond and an inflation-linked bond due 2030. (Reporting by Yoruk Bahceli; editing by)