* Portugal court suspends Novo Banco bond transfer
* Ten-year bond yields extend Thursday's rise, up 8 bps
* DBRS set to review rating Lisbon needs for ECB QE
By John Geddie
LONDON, April 29 (Reuters) - Portugal's borrowing costs rose on Friday after a court decision revived concerns about Lisbon's banks, and the country faced a ratings review that could edge it closer to junk territory and exclusion from the ECB's quantitative easing scheme.
Benchmark German bonds and most other euro zone debt yields were little changed ahead of inflation data that exactly a year ago triggered one of the biggest Bund sell-offs in history.
But Portuguese bond yields extended rises that started late on Thursday after a court provisionally suspended a central bank decision to transfer bonds from state-rescued Novo Banco to "bad bank" BES.
The decision could complicate the sale of the lender, and has reignited investor worries that the leftist government, already struggling to get its books in order, could be on the hook for further bank bailouts down the line.
"The broader picture is one where investors are worried about the fiscal outlook in Portugal," said Nick Stamenkovic, a bond strategist at RIA Capital Markets.
"Clearly sentiment at the moment is pretty negative and some people worry that if the banks are in trouble that might have some negative impact for the sovereign as well."
Others pointed to nerves surrounding a ratings review from DBRS due to be published after markets close on Friday.
While few expect it to downgrade the country -- a move that would see it lose the last remaining investment grade rating it needs to qualify for the ECB's quantitative easing scheme -- a change in the outlook of the rating is seen as possible.
Lisbon's 10-year yields rose 9 basis points to 3.07 percent , following a similar rise seen after Thursday's court decision.
The transfer of bonds ordered by the central bank in late 2015 to plug a hole in the bank's capital, has prompted a storm of complaints by investors since BES, a "bad bank" holding toxic assets, is being wound down.
The Bank of Portugal, which is struggling to find a buyer for the bank rescued in 2014, rushed to challenge the provisional decision and said in a statement it would not affect the Novo Banco's assets position.
The judge's decision, however, explicitly told the Bank of Portugal to make the transfer of bonds back to Novo Banco.
DBRS' head sovereign analyst told Reuters on Monday that Portugal's commitment to fiscal targets and a healthy relationship with its European partners are important supports for the credit rating.