* Euro rescue fund selling new 16-year bond
* Some analysts say yield rise more alarming
* Wednesday's Fed meeting keeps markets wary
By John Geddie
LONDON, April 26 (Reuters) - An unexpected bond sale from the euro zone rescue fund kept German yields near five-week highs on Tuesday, as worries grew that a recent rise in yields resembled the prologue to the brutal sell-off in 2015.
The European Stability Mechanism is set to price a new 16-year bond later on Tuesday. The announcement of the deal late Monday coincided with rise in benchmark Bund yields and appeared to catch investors off guard, coming on top of 10 billion euros of sovereign bonds due to be sold this week.
Ten-year German yields were flat at 0.26 percent on Tuesday, after climbing 3 basis points on Monday. That put them at levels not seen since mid-March and further away from a year's low of 0.075 percent hit a fortnight ago.
With investors also anticipating hawkish signals from the U.S. Federal Reserve at its policy meeting on Wednesday, some analysts wondered whether the recent rise in yields was the start of a more sustained move.
Bund yields sprang from a record low of 0.05 percent to over 1 percent in a matter of weeks last spring, inflicting double-digit losses on many investors.
"We feel a little bit reminded of the spring 2015 episodes when - also without ready explanation - Bund yields started to sell off hard," said Peter Schaffrik, RBC's chief European macro strategist.
The rising yields were particularly worrisome with long-term inflation expectations still near record lows, Schaffrik said.
The five-year, five-year forward rate - which is often cited by the ECB and measures what 2026 inflation expectations will be in 2021 - is near 1.40 percent, well below the ECB's target rate of near 2 percent.
Other strategists, like Mizuho's Peter Chatwell, said the ESM sale caused the rise in yields.
Yields tend to rise before debt sales as investors make room in their portfolios for the new supply. The deal comes on top of scheduled German and Italian bond sales this week.
In addition, Wednesday's Fed meeting may could deliver hints of another increase in U.S. interest rates.
While rates are expected to remain unchanged on Wednesday, officials have repeatedly said an increase is possible in June. Markets now price in about one chance in five of a move at the June 14-15 meeting.
"Depending on whether it is an aggressive, neutral or cautious signal that the Fed intends to send out with respect to the June interest-rate meeting, the FOMC get-together might well point the markets in a new direction," DZ Bank analyst Birgit Figge said.
(Editing by Larry King)