UK gilts track Bunds lower, eye inflation report

LONDON, Feb 10 (Reuters) - Gilt futures fell on Wednesday,
tracking a slide in Bunds as reports Europe may bail out
indebted Greece hit German debt, and ahead of the Bank of
England's quarterly inflation report later in the session.
EU leaders will hold a special summit on Thursday in
Brussels amid worries that Greece and other so-called peripheral
euro zone countries are struggling to deal with their mounting
debt piles.

At 0854 GMT, the March gilt future FLGH0 was 35 ticks
lower at 115.06, outperforming the equivalent Bund which slid 71
ticks as increasing expectations Greece will be bailed out by
Europe took their toll on German debt, the sovereign likely to
stump up most of the cash. [ID:nLDE61907O] [ID:nSGE61801C]

"Gilts are pretty much following Germany," said Francis
Diamond, strategist at J.P. Morgan.

"The movement in Bunds is all driven by the bailout story,
which we might get confirmation of either tomorrow or Friday,
and I think gilt futures are going to move in sympathy with that
until the inflation report."

The Bank of England will publish new growth and inflation
forecasts at 1030 GMT that could shed light on future path of
monetary policy and the central bank's decision last week to
pause its 200 billion pound quantitative easing programme.

Economists expect the BoE will admit that the recovery looks
weaker than it had hoped, while revising up its near-term
inflation profile. [ID:nLDE6170XN]

"Unless you have an incredibly dovish inflation report,
which suggests more QE ... it is hard to see the market
rallying," said Diamond.

The yield on 10-year gilts was 5 basis points higher at 4
percent, keeping the spread over Bunds steady at around 77 basis
points -- a narrowing from the 2-1/2 year high of 82.9 hit on
Monday.

Production data due at 0930 is expected to show
manufacturing output picked up in December, while the broader
industrial output measure is also forecast to have risen, buoyed
by higher energy use in the unusually cold weather.

* Mar gilt FLGH0 115.06 (-0.35)

* Mar short sterling FSSH0 99.34 (+0.01)

* 10-year yield 3.996 percent (+5 bps)

--------------------- KEY MARKET DATA---------------------------
Long Gilt futures <0#FLG:> Gilt benchmark chain <0#GBBMK=>
Short Stg futures <0#FSS:> Cash market quotes <GB/GILT1>
Deposit rates DM= Sterling cross rates GBPX1=
UK debt speedguide <GB/DEBT> Econ. indicator polls<ECI/GB>
--------------------KEY MARKET REPORTS--------------------------
Gilts [GB/] Sterling [GBP/]
Euro Debt [GVD/EUR] Dollar [USD/]
U.S. Treasuries [US/] Debt reports [DBT]
-------------------- GILT STRIPS DATA --------------------------
Gilt strips data <GB/STRIPS1> All gilt strips <0#GBSTRIP=>
Gilt strips IO <0#GBSTRIPIO=> Gilt strips PO <0#GBSTRIPPO=>
A list of all the strippable British gilts <0#GBSTRIPTSY=>
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(Reporting by Kylie MacLellan; Editing by Andy Bruce)