EURO GOVT-Euro zone bonds broadly higher but stabilising
* Euro zone bonds rebound after c. bankers' dovish comments
* Bund also benefit from month-end buying
* Euro zone yields fall but tipped to stay off year's lows
By Ana Nicolaci da Costa
LONDON, June 28 (Reuters) - German Bunds rose for a fourth consecutive session on Friday after central bankers sought to calm concerns about reduced monetary stimulus, but were still on course for a second straight month of losses.
Trade continued to be driven by expectations over when the U.S. Federal Reserve may begin curbing monetary stimulus and against that backdrop, traders said, investors would look to data on business activity in the U.S. Midwest for the latest insight into the health of the world's largest economy.
Investors dumped euro zone bonds across the credit spectrum in recent weeks on worries about future monetary support, reinforced last week by Fed Chairman Ben Bernanke, who said he expected a slowing in the pace of bond buying later this year.
Investors snapped some paper back up after the European Central Bank said an exit from its exceptional monetary policy measures remained distant and after two Federal Reserve policymakers said markets had misinterpreted the U.S. central bank's intentions.
Euro zone bonds are now stabilising and analysts said they did not expect yields to fall back to this year's lows.
"You've had a pretty significant rally from the lows over the last two three days. I think it's reasonable to assume some sort of pause," one trader said.
"The market is going to oscillate between the fundamental backdrop of deleveraging and the fact that the central banks are probably not going to be as hawkish in their actions as some people seem to have feared."
German Bunds rose 19 ticks to 141.65, also benefiting from month-end buying, according to traders.
This pushed 10-year German yields 1.5 basis points lower to 1.71 percent, while the borrowing costs for Belgium and the Netherlands also fell.
Ten-year Italian government bond yields fell 4.8 bps to 4.54 percent. Spanish bonds underperformed and 10-year yields were flat at 4.76 percent, having fallen at the open.
Analysts expected peripheral euro zone yields to have only limited room to ease further now that the idea of tapering was in the market and that volatility was expected to persist.
"The potential for a rally in the peripheral space is now more limited," said Patrick Jacq, European rate strategist at BNP Paribas.
"Liquidity and credit risk assessment has changed since the Fed spoke about tapering off... In the risk-reward environment, it will require higher yield than in the past because volatility is higher."
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