Euro zone bond yields up after GDP, stocks steady

By Natsuko Waki

LONDON (Reuters) - Two-year euro zone bond yields hit a four-month high on Thursday after data showed the region grew more strongly than expected in the first quarter, while European stocks steadied after an early sell-off.

The 15-nation bloc's economy grew 0.7 percent in the January-March period from the previous quarter for a 2.2 percent annual rise. Amongst national data, Germany offered a blockbuster reading -- its economy expanded 1.5 percent in the first quarter, the strongest growth since 1996.

Separate data showed euro zone inflation eased in April to 3.3 percent from an all-time peak of 3.6 percent in March.

Analysts say growth data, although not forward-looking, showed the region's economy, especially in Germany is holding up in the face of a strong euro and the credit turmoil which started in August.

"It is quite a sensation that growth has come out so strongly," said Ulrike Kastens, economist at private bank Sal. Oppenheim.

Two-year euro zone government bond yields rose as high as 4.016 percent, their highest since January. Euro zone interest rate futures are beginning to price in a slim possibility of an interest rate hike from the current 4 percent.

The FTSEurofirst 300 index reversed losses to stand up 0.03 percent on the day, while MSCI main world equity index rose 0.2 percent, boosted by Asian stocks which cheered benign U.S. inflation data out on Wednesday.

The euro initially benefited from strong German data but quickly erased gains to stand down slightly on the day at $1.5476. The June Bund future was down 73 ticks as safe-haven flows diminished.