EURO GOVT-Bunds rally as data casts doubt over U.S. recovery
* Bunds see their biggest daily gain in one and a half months
* Italian, Spanish yields fall as supply pressure eases
* Peripheral debt seen resuming rally
By Ana Nicolaci da Costa and Marius Zaharia
LONDON, May 16 (Reuters) - German Bund futures jumped the most in six weeks on Thursday as weak data out of the United States cast doubt over the strength of the recovery in the world's largest economy.
U.S. jobless claims rose sharply last week while housing starts tumbled in April and a gauge of underlying inflation pointed to weak demand.
Italian and Spanish bonds also climbed as supply pressures eased after the two countries sold large amounts of debt in syndicated deals earlier this week.
"The march higher in the Bund future was very much driven by the soft patch of U.S. data across the board," said David Schnautz, interest rate strategist at Commerzbank.
German Bund futures jumped 67 ticks to 145.31, its biggest daily gain since March 27.
Ten-year German government bond yields were 5.4 basis points lower at 1.32 percent, having risen to their highest since late March in the previous session.
Appetite for safe-haven bonds did not deter investors from picking up lower-rated paper, with Italian 10-year bond yields falling 7.2 points to 3.98 percent and the Spanish equivalent easing 5.9 points to 4.31 percent.
The two sovereigns have taken turns at the forefront of the euro zone crisis in the past two years, but their debt markets have this year benefited from ultra-easy central bank policies which have pushed investors into higher-yielding assets.
Their yields rose in recent sessions on speculation they would sell bonds via syndicate deals, which materialized.
Italy sold 6 billion euros worth of 30-year bonds on Wednesday, in its first ultra-long debt sale since 2009. On Tuesday, Spain sold a greater-than-expected 7 billion euros of 10-year bonds.
"For Italy and Spain, supply has been a factor behind the recent rebound in yields," said Jan von Gerich, fixed income chief analyst at Nordea in Helsinki.
"But the market is still interested in taking carry positions. The downtrend has not run its course. I think (Italian and Spanish) yields will hit new lows ... in the next couple of weeks."
Putting on carry positions refers to the practice of using cheap central bank money to invest in higher-yielding bonds to make a profit.