Upbeat data weighs on high-rated euro zone debt
* Euro zone data generally upbeat
* Bunds fall after Draghi disappoints some in the market
* If U.S. government shutdown continues, Bunds may benefit
By Ana Nicolaci da Costa
LONDON, Oct 3 (Reuters) - High-rated euro zone bonds fell on Thursday as generally upbeat European economic data prompted investors to sell as a batch of bond sales weighed on the market.
Growth in services companies, comprising the vast bulk of the euro zone's private sector, increased in September at the fastest pace since June 2011 while retail sales rose much more than expected in August.
Market participants said bond sales by Spain, France and Britain also weighed on the market in trading thinned by a public holiday in Germany.
"The sell-off was already taking place at the opening. Then we had economic data confirming the signs of recovery so this (added) probably some weight (on debt prices)," Patrick Jacq, European rates strategist at BNP Paribas said.
Ten-year German yields rose 3.8 basis points to 1.84 percent and the French equivalent edged 3.7 bps higher to 2.37 percent after its sale of 7.46 billion euros of long-dated bonds met firm demand.
Other higher-rated debt, including from Belgium, the Netherlands and Austria, also fell.
Ten-year Irish yields were 2 bps lower at 3.78 after strong service sector data.
But Spanish yields, which hit their lowest in almost five months on Wednesday, rose 3 bps to 4.28 percent, with prices weighed down by supply and a contraction in the country's services sector.
Italian 10-year yields rose 1 bps higher to 4.38 percent. Even though Italian Prime Minister Enrico Letta won a confidence vote on Wednesday, analysts say political risk could continue to weigh on Italy relative to its peers.
European Central Bank President Mario Draghi sounded slightly less dovish on Wednesday than some in the market had expected, telling a news conference the central bank was watching moves in market interest rates closely and was ready to use any policy option to temper them if needed.
But he made a distinction between excess liquidity in the financial system and short-term money market rates, saying there was "no stable relation" between the two.
The excess liquidity held by euro zone banks last stood at 220 billion euros. At 200 billion, market rates have historically started to rise.
"Draghi kept a rather dovish tone but we have a feeling that the ECB is not as ready as it is telling us to launch the LTRO (long-term refinancing operation) or even to cut rates," Cyril Regnat, fixed income strategist at Natixis, said.
Analysts said the partial U.S. government shutdown, if it continues, should benefit safe-haven debt.
German Bund futures were down 41 ticks on the day at 139.91, after hitting a one-month high of 140.87 on Monday.
"The longer it goes, the more supportive it gets (for safe-haven bonds). It also pushes the tapering debate back again," the trader said.
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