* Below-forecast Ifo raises concerns over euro zone recovery
* Spanish, Italian yields rise; Bunds near 2-month highs
* Speculation of more central bank easing increases
By Marius Zaharia
LONDON, Oct 25 Spanish and Italian yields rose
on Friday, drifting further away from this week's five-month
lows, after Germany's below-forecast Ifo business sentiment
survey raised concern about the euro zone economic recovery.
The business morale index unexpectedly fell for the first
time in six months in October.
The report follows weaker-than-expected manufacturing and
services sector surveys in the euro zone and the United States
Spanish 10-year yields rose 4 basis points on
the day to 4.18 percent, having hit a five-month low of 4.107
percent early on Thursday, according to Reuters data. Equivalent
Italian yields were up 6 bps at 4.20 percent, off
Wednesday's five-month lows of 4.085 percent.
"If Germany's economy is weaker it is not good news for the
rest of them (in the euro zone)," said Merrion Stockbrokers
chief economist Alan McQuaid, who expected, however, the bloc's
recovery to continue at a modest pace.
German Bund futures rose 10 ticks to 140.97,
keeping Thursday's two-month high of 141.22 in sight.
The reaction to the weaker recent data was muted as
investors also weighed the possibility of central bank action.
The Federal Reserve is expected to delay trimming its
bond-buying stimulus programme until early next year to lessen
the economic impact of a two-week government shutdown.
Some market participants also expect the European Central
Bank to introduce a new round of cheap long-term loans to keep a
lid on money market rates, which could rise further as liquidity
in the banking system shrinks.
The strength of the euro, trading around two-year highs
versus the dollar is an additional worry for the currency
bloc, which needs to boost exports to foster the growth that
could bring debt levels down to more sustainable levels.
Ultra-easy monetary policies are likely to support both top-
and lower-rated assets in the near term, some analysts said.
"Similar to equity markets, what we have is different types
of assets driven by liquidity," said Bayerische Landesbank chief
strategist Marius Daheim. He did not expect the ECB to ease
policy further, but he has pushed back his forecast for when the
Fed would start trimming its stimulus to March from December.